Finding balance for The City of London Investment Trust



Job Curtis, Fund Manager of The City of London Investment Trust, is relatively calm about the UK economy amid slowing economic data; and in this video he explains the thinking behind three new companies in the Trust’s portfolio and his thoughts on Vodafone after it announced a dividend cut.


Q: Hello and welcome to the latest video update for the City of London Investment Trust. I'm joined by the trust fund manager Job Curtis. Job, thank you for coming in today. So firstly Job there's a lot of talk at the moment about the global economy slowing down and the possibility of recession in the near future. Firstly is this a view that you'd agree with? And secondly how do you factor these thoughts into your stock selection?

A: Yes, there is a fair amount of evidence of a slowdown in growth globally. I think you can derive this from tightening monetary policy from central banks last year. So, growth is coming off quite a good rate and is slowing down. It's too early to talk about recession, there's some good things going on in the economy, for example in the UK we've got fairly full employment. So we’ve got a record low level of unemployment, so that's certainly a positive. I think the stock market tends to discount what is known and so that can throw up opportunities. But within the stock market there's going to be some companies that are more sensitive to economic growth and others that are more consistent. You know it's always a question of finding a balance between the different types of stocks.

Q: In your latest monthly commentaries you've mentioned some new additions to the portfolio recently, which includes Mondi, National Express and Senior. What can you tell us about these companies?

A: Well two of those stocks are quite cyclical companies, which I think are high quality cyclicals, which are a good opportunity; and in particular Mondi is a paper and packaging company and we are using more parcels as we get our deliveries. They're one of the leaders in that area in Europe and they've got a particularly low cost base with access to their own forests, for example, which gives them an edge and that's sustainable because they grow the trees as they cut them down. So that's an interesting company, bought at, in my opinion, an attractive valuation.

And then also Senior is an aerospace components company, which I think has got a lot of potential to improve its profit margins going forward. It's an international group based in the U.K. but with operations in the States and overseas generally. So, those are two sort of high quality cyclicals I would say; National Express is well-known as a bus and coach company in the U.K. but actually it's got bigger operations in the US. It does a lot of school buses and also it's got a big operation in Spain, where it's the leading bus and coach company and I call that much steadier; that's a 4% dividend yield I bought it on and it's well covered by free cash flow. That one is a steady company, most companies have an element of cyclicality but it's got a fairly low element, I would say, with National Express and all three of them.

Q: Did you need to exit any positions over the last few months?

A: Yes, one's always shuffling the portfolio and trying to come out of the stocks which are fully valued or weaker stocks, in particular we had a takeover bid from Manx Telecom, which is the Isle of Man telecom company. It was a small holding but we'd held since its IPO and so we sold that one. And we sold Pendragon, which is a car retailer and we also sold out of Centrica the utility company. So, we're always trying to refresh the portfolio.

Q: Job, my last question is regarding Vodafone, which you hold in the portfolio. And now Vodafone obviously had to cut its dividend in May, what can you tell us about the company's decision to do this and did it ring any alarm bells for you?

A: Yes Vodafone is very frustrating, I mean we all use our mobile phones much more than we ever did and mobile data is exploding, just sit on a train and everybody's playing games or watching films or listening to music on their mobile device. And yet the companies have struggled to capitalise on it; they have to invest very heavily and as a result I think Vodafone's dividend wasn't properly covered so they made the correct decision to cut it.

I had reduced City of London's holding in Vodafone and we are actually under represented relative to the market average coming into the cut, but I think the company has got some very good assets. It's not just UK, it's very big overseas, it's the number two in Germany and owns not just mobile networks but also cable networks, so it's got some very valuable assets and I think there's lot of potential there but it was the right decision to cut the dividend in my opinion for the company.

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