Relative to the FTSE All-Share, the FTSE 250 trust managed to produce total returns of 6.2% during the six months to 31 December 2017, falling short of the index’s 7.2%.
First launched in 1891, the investment trust is one of the oldest and largest in Britain, currently standing at £1.4bn in assets under management. Janus Henderson global equity income director Job Curtis (pictured) has managed the trust for the last 26 years.
While global equity markets saw strong growth during the reporting period, City of London was weighed down by its holdings in doorstep lender Provident Financial, a firm that has caused major headaches for the likes of Neil Woodford and Invesco Perpetual’s Mark Barnett amid consecutive profit warnings and bouts of share price volatility.
Although City of London has since sold its holdings in the beleaguered consumer credit firm, it identified the investment as “a notable detractor” over the period.
Its low exposure to mining and oil stocks relative to the FTSE All-Share was also identified as another factor in the trust’s inability to top the index. Although its top 10 holdings include oil giants Royal Dutch Shell and BP, the trust’s overall weighting toward oil and gas (9.41%) and the mining sector (5.65%) is much smaller than the index’s (12.97% and 7.9%, respectively).
However, it noted that these setbacks were partially offset by its positions in the housebuilders and electronic and electrical equipment where its stake in Renishaw “performed very well”.
Elsewhere, the trust reported that its revenue earnings per share rose by 9.5% to 7.40p.
So far this year, City of London has already declared two interim dividends of 4.30p each. In its half-year report, it said it expects to be able to increase its dividend for the 52nd year in a row off the back of its “diverse portfolio, strong cash flow and revenue reserves”. The board will review the quarterly rate before the third interim is declared in April 2018.
Despite the recent “turbulence” in world equity markets, chairman Phil Remnant said synchronised “robust economic growth” globally is leading to “improving corporate profitability”.
“The dividend yield from UK equities remains attractive relative to the main alternatives notwithstanding the small increase in the bank rate to 0.5% and possible further increases in 2018,” he said. “City of London’s diverse portfolio of high quality companies with strong balance sheets is well placed to continue to produce dividend growth and competitive returns.”
Shares in City of London IT rose modestly on Friday morning and were up 0.68% to 412p at the time of writing.
