Caution and conservatism can be big watchwords in the world of investment trusts. There’s nothing wrong with that, of course, as long as it generates the returns — and the dividend payouts — that keep shareholders happy.
In the case of the City of London Investment Trust, it’s hard to imagine a more careful and considered investor. The portfolio is stuffed full of solid, global and, on the face of it, stable stocks, from Diageo and BP to British American Tobacco and Unilever. The returns measure up pretty favourably, too.
The trust started life in 1860 as the City of London Brewery Company, becoming an investment trust in 1932 when the proceeds of the sale of its brewery and some pubs were invested in the stock exchange. After the remaining pub interests were auctioned off in 1968, it concentrated solely on investments, changing its name to the City of London Investment Trust in 1997 and focusing on generating capital and income growth over time from primarily UK-listed companies.
In a sign of its stability, the trust has been managed by Job Curtis at Janus Henderson since July 1991. Mr Curtis, 57, has never failed to increase the annual dividend during his 27 years overseeing the portfolio and the trust under previous managers has an unbroken track record of lifting the payments in each of the past 52 years. With every indication so far that things will be no different in the present financial year, it’s no surprise that this trust has a particularly loyal following among individual investors.
The portfolio stands up well to scrutiny, although the sceptical investor might have a couple of quibbles. The 40 largest holdings account for just under three quarters of the total. That might worry some, though it is reassuring that all of the investments are in companies that are strong cash-generators and reliable dividend-payers.
While there is no strong bias in favour of any given sector, those nervous about financial shares against a backdrop of a slowing global economy might find the trust’s exposure to the sector, which accounts for about 24 per cent, a little disconcerting.
Similarly, fans of technology, healthcare and telecoms stocks, which arguably can make for racier returns, might like it if they featured a little more prominently: technology holdings account for only 1.3 per cent of the portfolio, for example, and telecoms and healthcare a respective 5.9 per cent and 7.1 per cent, as of the end of December.
Otherwise, there is little to find fault with. In terms of performance, Mr Curtis has done creditably well. He has beaten his benchmark, the AIC UK Equity Income sector, over six months and one and three years. It is also of note that the trust’s management fee, most recently reduced to 0.325 per cent, makes it among the cheapest in the market.
Unsurprisingly, there is considerable demand for the shares, which tend to trade at a small premium, most recently of about 1.6 per cent, to the net value of its assets. As a result, the trust is a regular issuer of new shares — more than 6.8 million during the six months to the end of December and a further 6.2 million in the months since — in part to satisfy demand and to keep a lid on the premium so the price doesn’t become too high.
The shares, up 1p, or 0.2 per cent, at 425½p yesterday, had a turbulent time during the sharp market sell-off during the second half of last year, but have increased in value by more than 123 per cent over the past decade. With a yield of getting on for 4.6 per cent, they are a compelling proposition, both for those seeking income from dividends and those who want their capital to grow.
ADVICE Buy
WHY High-quality portfolio, carefully managed, generates strong and consistent returns over long run
Aston Martin Lagonda
The performance of Aston Martin Lagonda shares since the luxury carmaker floated with a value of £4.3 billion last October has been abysmal.
Priced at what many argued at the time was an overly aggressive £19, the shares have gone one way since. They closed down 13p at 937p yesterday, valuing the company at just under £2.14 billion. That’s equivalent to £2.19 billion in shareholder value destroyed in a little more than six months, and there is no shortage of those in the City who think what’s already looking bad is going to get worse.
Aston Martin, whose cars are famed for their use in James Bond films, was founded in London in 1913. Its luxury models, which include the DB11 and the DBS, have an average selling price of about £157,000, although this has been falling as the carmaker shifts the mix of its products away from its higher-priced motors. Customers are expected to make a considerable upfront deposit.
The company, whose target customers include wealthy Chinese and American buyers, aims to build and sell between 7,100 and 7,300 cars this year and it has high hopes for its range of electric vehicles, the latest of which will be on display today at the Shanghai Auto Show, as well as its DBX sports utility vehicle, which will be produced at a new factory in St Athan in south Wales.
There are many reasons for the low share price, including worries about the implications of a no-deal Brexit for its supply chain and short-sellers depressing it with downward bets. The DBX will not be produced until the end of the year, but is factored into the targets, even though its popularity is not assured. The company has been building cars for stock, fuelling doubts about the strength of future sales, exacerbated by weakness in key markets, including Germany. Analysts have fretted about cashflows and costs.
Aston Martin Lagonda may yet banish these concerns, but in the meantime there is plenty of what investors hate: uncertainty. There is no dividend, although the shares trade on a more realistic multiple of 22.5 times Bernstein’s forecast earnings. This column recommended avoiding the shares at the time of the flotation and that advice stands.
ADVICE Avoid
WHY A string of uncertainties could further depress shares
