DIY Investor Magazine
/
March 2017
41
Since 1991 I have managed City of London Investment
Trust, which is predominantly invested in UK equities
and has grown to have assets of £1.36 billion (at 31st
December 2016.) While we have large holdings in BP
and Royal Dutch Shell, we have less than the average
for the UK indices given their sensitivity to the oil price
and the risk of having too much in any one stock. This
was well illustrated in 2010 when the Macondo oil spill
caused BP to stop paying its dividend for a while and
led to it having to pay large fines in the US.
City of London’s portfolio is diversified with investments
in 117 companies (at 31st December 2016) including
those in sectors such as telecommunications, consumer
staples, financials and housebuilders. As an investment
trust, it has the ability to retain up to 15% of its income
in any one year, building a revenue reserve which can
be used to support its dividend during difficult years
when there are dividend cuts across the market. Though
not a guide to the future, this has enabled it to grow its
dividend each year for the last 50 years, the longest of
any vehicle in the UK.
All in all, the UK equity market is offering a dividend
yield of 3.4%* (FTSE All Share Index) which is attractive
relative to the main alternatives such as 10 year gilts
(or UK government bonds) yielding 1.35%* or bank
deposit rates, anchored by the UK base rate at a paltry
0.25% (*source: Financial Times 19th January 2017.)
While equities are inevitably more volatile than other
asset classes, the income attraction of UK equities is
currently considerable. This may give comfort for the
patient investor in the context of the many political and
economic uncertainties.
Past performance is not a guide to future performance.
The value of an investment and the income from it can
fall as well as rise and you may not get back the amount
originally invested. The information in this article does
not qualify as an investment recommendation.
WHAT ARE THE KEY FACTORS SHAPING GLOBAL
EQUITY INCOME INVESTING?
Ben Lofthouse, Global Equity Income portfolio manager,
explains the recent market rotation from defensive to
cyclical stocks and examines key risks and opportunities
for global equity income investors.
•
Prospects for earnings and dividend growth
•
The likely impact on equities of expected interest
rate rises in the US
•
Where the team are finding the best value
opportunities
