City of London is too 'index-like'

The City of London Investment Trust plc invests in the UK for long-term growth in income and capital, and recognises the importance of dividend income to shareholders. It is the only investment trust in the UK delivering rising dividends every year for 43 consecutive years.

Job Curtis has managed The City of London Investment Trust since 1991. He joined Touche Remnant in 1987, subsequently acquired by Henderson Global Investors, and has been head of Henderson's Value & Income investment team since 2003. Mr Curtis is renowned for his highly successful, conservative investment approach, based on intensive analysis of the fundamentals of each stock, and strict risk control.

However, Charles Stanley says: "The manager of CTY describes an investment process that is 'conservative and low risk'. Our analysis demonstrated that for 'conservative' we can read 'index-like or worse performance'."

The trust's benchmark is the FTSE All-Share 4 per cent capped. Its net asset value (NAV) has underperformed this benchmark over one year and three years to the 31 August 2009.

Over the past year, the total expense ratio (TER) has risen from 0.37 to 0.4 per cent, still very competitive compared with other investment trusts and other actively managed equity funds. Among its peers in the Association of Investment Companies (AIC) UK Growth & Income sector, it is ranked 10 out of 18 over one year and six out of 18 over three years.

However, on 1 July 2009 the previous performance fee based on outperforming the benchmark was replaced by a performance fee based on outperforming its peers in the AIC UK Growth & Income size weighted average net asset value total return. The new performance fee structure may lead to improvements in performance.

In August Mr Curtis took profits in some cyclical stocks that had rallied strongly from the low levels reached earlier in the year. Stocks that he sold included Thomson Reuters in media and DS Smith in paper and packaging. He recycled the proceeds into defensive companies with strong balance sheets and attractive dividend yields - for example, Centrica, the energy supplier, and AstraZeneca, the international pharmaceutical company. Mr Curtis has reserves that mean he can maintain dividends in the short term.

However, the holdings and performance do seem to emulate a tracker fund, which raises the question whether you are getting value for money.

Charles Stanley suggests switching into Edinburgh Investment Trust (EDIN) or Schroder Income Growth (SCF) for better-managed income-generating UK equity trusts. Managed by Neil Woodford, EDIN is very defensively positioned with pharmaceuticals and tobacco stocks dominating its top holdings. In contrast, SCF has a very high exposure to financials at 18.96 per cent.

Source: Henderson, *Morningstar and **Thomson Datastream

Notes: Price and performance figures as at 22.10.09

TOP 10 HOLDINGS as at 31.08.09

SECTOR BREAKDOWN as at 31.08.09