UK Edition
Questor: City of London – the ‘ideal trust’ for savers who need retirement income
Last week Questor had the good fortune to talk to a professional investor who had been involved with investment trusts for three decades – and to find out which one he would be happiest to entrust his own retirement savings to.
Richard Hughes, who ran M&G’s Charifund until his retirement a week ago, said investment trusts had enjoyed a more prominent role in the City when he began his career and were now more of a “hidden jewel”.
He said: “From the point of view of institutional investors, investment trusts have been in massive decline for many years – when I started my career they were an essential part of many portfolios.
“But fashion moved on and many institutions felt they should manage their own funds. However, for me they are a hidden jewel of the UK scene. Many have delivered excellent returns.” Hughes said he used trusts “mainly in search of high yield”, using discounts to “give me more bang for my buck”.
“I use them tactically as a way to pick up income. Currently Charifund has about 4pc of its assets in investment trusts. By having a spread of them you diversify away risk.”
When Questor asked him which investment trust he would choose to form the cornerstone of his own retirement portfolio, he had no hesitation in picking one run by a rival fund manager: the City of London investment trust, managed by Job Curtis of Janus Henderson.
City is a trust that Questor has always held in high regard; we have shied away from tipping it only because it tends to trade at a premium.
But the M&G manager was unstinting in his praise.
“I want a high-yielding UK fund. I have been a UK fund manager all my life and while some investors say ‘why not look overseas’ Britain has tended to produce very strong returns.
“Job has been managing City of London since 1991 and I have huge respect for him. Not only is he very experienced himself but he has a number of long-serving colleagues. The portfolio has a low annual cost of 0.42pc and a yield of 4.2pc with a long record of raising dividends.”
Curtis has produced an aggregate return of 120.7pc over the past 10 years, compared with 105.8pc for his peer group, according to FE Trustnet, the fund analyst.
Hughes added: “Not only is City of London a good choice for retired investors but it would be an absolutely bombproof choice for younger savers who invest monthly: in bear markets they would benefit from a widening of the discount and their reinvested dividends would buy more units.”
Questor says: buy
Ticker: CTY
Share price at close: 401p
Update: Canadian Middlefield Income
We also took the opportunity last week to ask Hughes for an update on Canadian Middlefield Income, which we tipped a year ago on the basis of his positive view of the trust’s managers. He said then that they “do their homework on stocks” and had a strong record of outperformance.
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The trust’s shares have slid by 11.7pc since our tip but Hughes said the pound had strengthened against the Canadian dollar by a similar percentage. This has had the effect of making the trust’s assets less valuable in sterling terms.
“We still own our stake,” Hughes said. “It’s a very sound investment. We rate the manager, we rate Canada and nothing has changed with the trust’s holdings. Over the longer term we wouldn’t be phased – if the exchange rate goes the other way we should get a currency gain. The trust also offers diversification.”
He said the discount had widened, making the shares “even more attractive” and increasing the yield to 5.5pc. Hold.
Investment trust news
Merchants has announced the 36th consecutive rise in its annual dividend.
Fidelity Japanese Values has proposed an amendment to its investment policy, giving it greater flexibility to invest in companies of various sizes. Its name will change to Fidelity Japan Trust.
A variable fee will be introduced: the current charge of 0.85pc of gross assets will be replaced by 0.7pc of net assets plus or minus a symmetrical performance fee of 0.2 of a percentage point, meaning that the minimum fee will be 0.5pc a year and the maximum 0.9pc.