GlobalMay 11 2017

Best in Class: Frexit-proof fund gains trust

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Best in Class: Frexit-proof fund gains trust

By the time this article is published we’ll know who has won the French election. Markets will either be breathing a sigh of relief or we could be in a state of panic that ‘Frexit’ could soon be upon us. We’ll also be just a month away from our own general election. 

At times like this, when politics around the world are causing much uncertainty and there is the possibility of stock markets moving quite violently and quickly in either direction, experience and a very good, very long track record could be a comfort to investors. Few investment vehicles epitomise this more than the City of London Investment Trust.

The credentials speak for themselves: launched in 1891, it is one of the longest-running investment trusts in UK; the dividend payment has been increased every year for the past 50 years – only occasionally using the revenue reserve facility – and, for the past 26 years, it has been managed by Henderson’s Job Curtis.

Mr Curtis has more than 30 years of experience. In the past three decades, he has managed money through seven UK general elections, several stock market crashes, two recessions, inflation rates ranging from negative numbers to 8 per cent, and interest rates of more than 13 per cent down to the 0.25 per cent they are today.

The trust sits in the IT UK Equity Income sector and aims to provide growth in income and capital by investing in predominantly larger UK companies with international exposure. Its current yield is 3.9 per cent.

A firm’s ability to pay – and increase over time – its dividends has a high priority in Mr Curtis’s stock selection process. However, he is also driven by valuations and is careful not to pay too much for any stock.

He particularly likes companies whose business model provides them with a competitive advantage, and multinational consumer staples brands with relatively stable earnings and growth prospects in emerging markets are at the heart of the portfolio.

He describes himself as having a conservative personality, which is reflected in the portfolio. He pays attention to the downside risks as well as the upside potential. So other than in exceptional circumstances, the trust’s gearing is not allowed to exceed 20 per cent. 

However, there is no set discount control mechanism in place owing to the diversity of the type of investors in the trust, and Mr Curtis ensures the share price trades near to net asset value. As a result, the board have actively issued shares in the past and will continue to do so when they feel it is warranted.

He and the Henderson team have a thorough research process and the conservative approach to stock selection has helped the trust to deliver steady returns over an extremely long period of time. Maintaining dividend income is of the utmost importance to the board.

Many of the companies in which this trust invests have stayed at the top of their game far longer than most politicians. No matter the outcome over the weekend, and next month, I see no reason why this should change.

The City of London Investment Trust is an excellent core option for investors wanting UK equity exposure, but seeking dividend security and the reassurance of an experienced manager.

Darius McDermott is managing director at FundCalibre