Fund Manager commentary - City of London Investment Trust



Fears of slowing economic growth weighed on global stock markets in May and the UK equity market produced a negative return of 3.0%, as measured by the FTSE All Share Index. The FTSE 100 Index of the largest companies produced a negative return of 2.9% and therefore outperformed the FTSE 250 Index of medium-sized companies which produced a negative return of 4.0%. 10 year gilt yields fell over the month from 1.18% to 0.88% which is an indication of investors’ fears of economic slowdown.

The best performing sectors tended to be defensive where demand for products and services is relatively steady and not particularly related to economic activity. Smith & Nephew, which is in the health care equipment sector and is held in City of London’s portfolio, was the best performer in the FTSE 100 Index. Telecommunications was a notably weak sector. Vodafone announced a cut in its dividend. City of London holds Vodafone but is under represented compared with the market average. The biggest telecommunications holding in the portfolio is Verizon Communications which operates in the US and has a record of consistent dividend growth.

Advantage was taken of the weakness in share prices in May to buy two new holdings. National Express is a bus and coach operator with significant operations in the US and Spain as well as the UK. Senior is an engineering company which makes components mainly for aircraft manufacturers but also for a range of other industrial operations.

Going forward, monetary policy from the leading central banks is likely to be more stimulatory to counter recessionary forces. While parts of the UK economy have been slowing down, the record level of employment is encouraging. The UK stock market has exposure through the companies which are listed on it to a mixture of the domestic as well as the global economy. UK equities continue to offer an attractive dividend yield compared with 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.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

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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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