Fund Manager commentary - City of London Investment Trust

21/01/2019

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UK equities produced a negative return of 3.75% in December as measured by the FTSE All Share Index. The FTSE 100 Index of large companies, with a negative return 3.5%, outperformed the more domestically focussed FTSE 250 Index of medium-sized companies which produced a negative return of 5.1%. Concern about rising US interest rates against a background of slowing global economic growth weighed on investor sentiment. In addition, UK domestic stocks were adversely affected by pessimism about the outcome of the EU withdrawal negotiations.

The best performing sector was mining where City of London is under represented relative to the market average. However, City of London has large holdings in BHP, Rio Tinto and Anglo American, which together make up 4.7% of the portfolio (at 31st December 2018) and did well over the month. General retailers were a notably weak sector given tough competitive conditions. City of London has reduced exposure to this sector over the year to only 1.4% of the portfolio but there are attractive dividend yields available on selected holdings. 

A new holding was bought in Ferguson, which is a UK listed company with the vast majority of its operations distributing building products in the US. Ferguson’s valuation looked attractive given its strong record and its growth prospects.

The weakness in UK equities in recent months has led to an improved dividend yield from the market because dividends have continued to grow. While shares are always prone to be buffeted by macro-economic and political concerns, the dividend yield from UK equities is currently much more attractive than the main alternatives.


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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