March Commentary - City of London



​The UK equity market produced a negative total return of 1.8% in March as measured by the FTSE All Share Index. Other major equity markets were weak with the US central bank increasing its policy rate range by 25 basis points to 1.5%-1.75%. In addition, heightened rhetoric on trade tariffs was poor for sentiment. In the UK, inflation was reported for February as being slightly below expectations. Gilt yields fell and sterling rose by 1.5% on a trade weighted basis which helped the more domestic mid-cap FTSE 250 Index outperform (with a negative return of 0.9%) relative to the more international FTSE 100 Index (which had a negative return of 2.0%.)

Against a background of firmer bond prices, defensive sectors did well over the month with notable outperformance from utilities where City of London has above average exposure. On the other hand, general retailers underperformed, including Kingfisher, which had a disappointing trading update, and where City of London has a stake. In the related area of retail property, Hammerson, where City of London also has a stake, received a takeover approach from Klepierre of France. Another of the Trust’s holdings, NEX, the financial services group, also received a takeover approach during the month.
The level of takeover activity across the UK equity market is one indicator of value. Another is the dividend yield which remains attractive relative to the main alternatives. City of London has announced its intention to increase its dividend by 6.0% for its current financial year (to 30th June 2018.)
Basis points – used to describe the percentage change in the value or rate of a financial instrument.
Gilt yield – is the interest rate on a government bond (Gilt) based on its buying price. (It is calculated by dividing the coupon paid by the price.)
Trade weight - A way of evaluating the strength of a country's currency by weighting its value according to the relative amount of trade carried out with each of its trading partners.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

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The City of London Investment Trust plc

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

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Specific risks

  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • This trust is suitable to be used as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this trust.
  • The trust could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the trust.
  • If a trust's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio diversified across more countries.
  • The return on your investment is directly related to the prevailing market price of the trust’s shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the trust. As a result losses (or gains) may be higher or lower than those of the trust’s assets.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • Where the trust invests in assets which are denominated in currencies other than the base currency then currency exchange rate movements may cause the value of investments to fall as well as rise.
  • The trust may use gearing as part of its investment strategy. If the trust utilises its ability to gear, the profits and losses incured by the trust can be greater than those of a trust that does not use gearing.
  • All or part of the trust's management fee is taken from its capital. While this allows more income to be paid, it may also restrict capital growth or even result in capital erosion over time.

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