“I find dividend yield a very good starting point”

However, with the City of London investment trust recently confirming its 50th consecutive year of dividend rises, manager Job Curtis is clearly not having trouble finding the right investments.

The director of global equity income at Henderson will have run the trust for 25 years in July, and for him a valuation-driven style is central to what he does. “I think equity income appeals to a more conservative type of investing,” he says.

“It is naturally a good area for conservative investors because the types of firms that consistently grow their dividends are reliable companies. It appealed to me; I’d probably have been less good at growth stocks.

“I find dividend yield a very good starting point. It’s not the only thing we’re looking at – we’re looking for dividends that can grow, so it’s that combination of yield and growth.

“I think we’re quite pragmatic in that we don’t live in an ivory tower. But I do think having a view on the world and trends in the economy are quite important and you have to factor that in. You can’t just look at the valuation in total isolation from what’s going on in the world.”

As part of what was called the value and income team and is now the global equity income team at Henderson, Mr Curtis has expanded his remit outside the UK, and works with Alex Crooke and Ben Lofthouse on a global equity income mutual fund in the US.

“That is a team effort but I’ve played a part and it has been very helpful. I’ve become a lot more global and I think the UK market is very global now. Some 75 per cent of profits in the FTSE 100 index are from overseas, and some of the big sectors such as oil and pharmaceuticals are genuinely global sectors.

“[The global fund has] been very helpful in my work on the City of London. [The trust] can go up to 20 per cent in overseas listings, so I mainly have a mixture of US and European stocks.”

This globalisation of the market is one of the biggest changes the manager has witnessed in his career, which he started as a graduate trainee at stockbroking firm Grieveson Grant, before moving into the private client side and finally fund management. After being an assistant on the City of London trust, he took over the helm in 1991 from Michael Moule.

“I had built up a reasonable track record but I was very lucky at the age of 30 to become manager of the City of London, which was a smaller trust in those days. I’m always very grateful to Touche Remnant and the independent board of the trust for trying me out. It was a huge break to become manager at that point.”

Another contributor to the market’s globalisation, and another big change in the past 15 years has been the rise of technology and the effect the internet has had in terms of company research and disclosure.

Mr Curtis says: “In a way it is much easier to research companies, although the reports are much bigger, so in some respects it is harder to see the wood for the trees. But there is more disclosure if you know where to look for it. It has been very interesting to live with all the changes.”

The manager’s experience of the technology bubble in the late 1990s reinforced his belief in a valuation style of investing. “It was a very exciting era. A lot of people could see how the internet was going to change absolutely everything, and it has,” he says.

“You could have made a quick buck if you had invested in technology shares in that period, but most of them were horribly overvalued. That was a classic case of where the vision was right but the share price valuations were wrong. You could have ended up losing a lot of money if you’d invested in technology shares then.

“It was a very tough market for the so-called ‘old economy’ stocks. They were going down and the ‘new economy’ was going up. British American Tobacco fell below 300p per share and now it’s above £40.

“At the time you would have thought tobacco was a declining industry and want to avoid that, while internet technology is good and you want to be in that. But because of the share price valuation factor it wouldn’t have been the right thing to have done. So the valuation is very important.”

His long tenure has also been a boon at times such as the second half of 2014, when the oil price started falling. Having followed the sector since he was a trainee analyst, Mr Curtis took action “pretty quickly” by selling a couple of overseas oil stocks, as well as his oil services exposure.

“I did feel the fall was about a supply-side shock caused by the US shale revolution, and that the oil price would stay lower for longer than some people were expecting. [With] something like that it helps to have had experience and seen a few cycles. I remember the oil price fall in the 1980s: I was a trainee analyst on small North Sea oil stocks and [the models] were all predicated on the oil price going up by 5 per cent a year, but it didn’t do that, it did the opposite.”

An event such as the global financial crisis is a less common occurrence, but Mr Curtis notes “that is what is so interesting” about the job.

“There are always new things out there. You get some things that are reminiscent of previous cycles, but then you get things caused by technology and the financial crisis that are new.”

As equity income continues to be a favourite for investors looking for yield, Mr Curtis suggests that overall it has been a good space to be in, providing you can find the dividends.

“There are some very big stocks where the dividend cover is quite thin. The oil stocks are a case in point – Shell and BP – as well as HSBC and GlaxoSmithKline, and we have more or less seen dividend cuts from all the mining stocks. But on the other hand we’ve had some quite good special dividends across our portfolio, and our experience has not been too bad. I’m not saying there aren’t issues in some of the stocks, but it has not been unremittingly bad news.”

The portfolio is “pretty diversified”, with consumer staples and pharmaceuticals accounting for roughly 21 per cent. The manager admits he is underweight pharmaceuticals and has also “sort of globalised that sector” on the basis “there are some issues with the UK stocks”.

He explains: “It is a core area, but it has rerated a bit as the stability of earnings is attractive in the current environment. I have a very diverse approach – my whole rationale is to have a good spread and not have all your eggs in one basket.

“The top 10 make up just 28.5 per cent of the portfolio. The yields [of some of those top 10] imply some doubt over the dividend, but even if I get dividend cuts there I don’t have so much in those stocks that it would sink the ship.”

This strategy and process is clearly paying off, which Mr Curtis attributes to three things: a good diversification and spread of stocks, a focus on cash generative companies, and the investment trust structure. “I couldn’t have done it without being an investment trust,” he says.

“We’ve paid [dividends] out of reserves in three of the past 10 years. In some years our earnings per share has fallen, but we’ve had the reserves to fall back on. We have put back into reserves in recent years, so that is there for a rainy day.

“I always say you can’t live on reserves indefinitely, but for two or three years that is what they are there for, allowing us to smooth dividend distribution.

“If I’d been an open-ended fund with exactly the same portfolio, I’d definitely have had to cut my distribution in some years. [Reserves mean] you don’t have to chase dividends in a bear market as you can take a longer-term view.”