18th Sep 2020 10:01
(Alliance News) - City of London Investment Trust PLC on Friday said its underperformed against its benchmark in its most recent financial year due mostly to gearing, though increased its dividend nonetheless.
The company mostly invests in equities listed on the London Stock Exchange and posted a negative 15% net asset value total return for its financial year ended June 30, worse than the negative 13% return of its benchmark, the FTSE All-Share index.
The company's chair, Philip Remnant, explained that this was "mainly due to the negative impact of gearing".
"The ability to gear is an advantage that investment trusts have in rising equity markets. With falling markets, it had the opposite effect over the 12-month period. In addition, the fair value of our Private Placement Notes rose due to the fall in gilt yields. Gearing, which was in an 8% to 11% range during the year, detracted by 2.4%," the chair said.
"By historical standards, the cost of the GBP85 million of long-term debt which we have taken out since 2014 is extremely low and should enhance shareholder returns in the mid to long term. The last of our expensive debenture stock is due for redemption in January 2021 and the board is currently considering how best to refinance this," he added.
NAV per share fell to 344.0 pence as at June 30 from 421.2p the year before.
City of London Investment Trust paid out dividends per share totalling 19.0p for the financial year, up 2.2% from 18.6p the year before.
Remnant said: "At a time when many of our investee companies cut their dividends, we increased ours by 2.2%. In respect of the current year ending June 2021, we expect to pay a greater amount, thereby increasing the dividend for a 55th consecutive year."
Remnant is to retire at the company's October 27 annual general meeting. He will hand over to Laurie Magnus, who joined the board earlier in the year.
Outlook-wise, the chair commented on the "unusually large number of uncertainties", mostly relating to Covid-19 but also Brexit.
"UK companies responded to the crisis with a wave of dividend cuts, omissions and cancellations. In the July/August half year reporting season, there were tentative signs of an improving mood with several of our investee companies restoring dividends, including BAE Systems, Direct Line Insurance and Persimmon. The large fall in dividends paid has taken down the true yield of the UK equity market to between 3% and 4%, and in line with our objective City of London's yield stands at a premium to that. This remains significantly in excess of the main alternatives of fixed interest and bank deposit rates. To the extent that confidence grows that a base has been found and the market is set to return to dividend growth, UK equities could achieve pleasing returns," Remnant said.
Shares in City of London Investment Trust were down 0.1% at 321.80p on Friday morning.
By Anna Farley; [email protected]
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