City of London - is it worth it?

[Avantegarde]

The City of London investment trust has long been well regarded and popular. Its aim is to outperform the total return (TR) of the FTSE all-share index in the long term. Well, in the medium term it has failed. In the past five years (during which I have been an investor) the TR of the City of London has been 46% while funds tracking the all-share index (such as the vanguard FTSE all share tracker: https://www.share.com/investments/funds ... x-fnd/hrp3) have returned exactly the same amount. I hold it and its annual cost is just 0.08%. City, according to its revamped KIDS document, charges 0.88% each year - a bit over ten times as much as the tracker. Should I simply dump City for the tracker and expect to get the same return in the future for a tenth of the cost?

[AleisterCrowley]

I decided to have a go with a couple of ITs some years ago
I picked two - SMT and CTY
I put a lump sum in each and started a regular investment into ONE of them
Guess which one...

[Dod101]

The first thing to say is that from the Annual Report 2017, the Ongoing Charges Ratio is 0.42% and the management fee underlying that is 0.365% falling to 0.35% for assets over £1 billion, so less than half the figure you are quoting. I do not hold it as it would be a fairly good proxy for my HYP and I intend to keep my HYP so there is no point in doubling up. The last five years have not been brilliant for defensive shares in general and I would imagine that City of London's results reflect that. In any case if a tracker would give you exactly the same return, why bother to move?

I am not defending City of London and am totally neutral on it.

Dod

[SalvorHardin]

The City of London investment trust has long been well regarded and popular. Its aim is to outperform the total return (TR) of the FTSE all-share index in the long term. Well, in the medium term it has failed. In the past five years (during which I have been an investor) the TR of the City of London has been 46% while funds tracking the all-share index (such as the vanguard FTSE all share tracker: https://www.share.com/investments/funds ... x-fnd/hrp3) have returned exactly the same amount. I hold it and its annual cost is just 0.08%. City, according to its revamped KIDS document, charges 0.88% each year - a bit over ten times as much as the tracker. Should I simply dump City for the tracker and expect to get the same return in the future for a tenth of the cost?

I don't own the shares, but a quick look at the 2017 annual report (page 4) shows an annual management fee of 0.365% for the first billion of assets then 0.35% for the rest.

As for the KID, I treat any figure in that document with suspicion. Much better to look at the actual fees charged and then build in something for their trading costs.

As always it is much better to check the primary source (where available) instead of relying on secondary (summarised) data because it often contains errors. That's arguably the most important thing I learned in (of all places) my history degree!

[nmdhqbc]

I don't agree with the way the fees and performance was stated here. It makes it sound like they performed equally and THEN the fees are taken off. Correct me if I'm wrong but I presume they performed equally well net of fees. So actually equally good investments over that time period. So in a rising market a steady eddy like CTY doing equally well is not bad and bodes well for when the bad times come.

[nmdhqbc]

...oh, and as others have said that 0.88% sounds too high. Are you sure that's right?

[Dod101]

...oh, and as others have said that 0.88% sounds too high. Are you sure that's right?

SalvorHardin and I have both commented that the figure in the Annual Report is.365% falling to .35% on assets over £1 billion. The AR also says the Ongoing Cost Ratio is 0.42%. Like SH I only look in the horse's mouth and not secondary sources so usually refer to the Annual report from t6he company or the Company RNS.

Dod

[richfool]

I hold CTY and TMPL (Temple Bar) from the same sector, and I have always found the capital growth of TMPL has been better than CTY, though of course the dividend yield on CTY is higher (currently 1.00% higher) than TMPL.

The Citywire performance tables are here:

http://citywire.co.uk/money/investment- ... ePeriod=12

I personally would always prefer an active fund to a tracker.

[Dod101]

Forget a fraction of a per cent in charges. Focus on what really matters. City of London is a dog. A miserable excuse of an investment. I will get flamed yet again for pointing it out, but if Job Curtis had simply put his money into a FTSE250 tracker fund, gone and played golf every day, the returns to the shareholders would have been identical. Why he is held in such awe and respect, I have no idea. Living off past glories, I suppose. If you really want to make money rather than just have that fuzzy warm feeling you get when everyone agrees with you, look elsewhere.

I am inclined to agree with Fred although I would never put it in quite these terms. Neither am I sure why people have gone off Murray International but then we are all different and I am sure that City of London plays a part in a Doris portfolio, but for anyone with any sort of interest in investing, City of London is an IT I would avoid (as I do). If, like a HYP, (although Fred does not I think like them very much either) the emphasis, or top priority, is an income, then City of London might have a place.

Dod

[nmdhqbc]

Forget a fraction of a per cent in charges. Focus on what really matters. City of London is a dog. A miserable excuse of an investment. I will get flamed yet again for pointing it out, but if Job Curtis had simply put his money into a FTSE250 tracker fund, gone and played golf every day, the returns to the shareholders would have been identical. Why he is held in such awe and respect, I have no idea. Living off past glories, I suppose. If you really want to make money rather than just have that fuzzy warm feeling you get when everyone agrees with you, look elsewhere.

FTSE 250 done pretty good recently so I'd say well done Job Curtis for matching it. Not sure what time period but I'd be happy with most looking at the chart. Of course choosing the exact index to track in hind sight is easy. Will the FTSE260 continue it's good run? Who knows. I own VMID and CTY in roughly equal amounts.

[Dod101]

Fred I like your expression and I certainly understand where you are coming from. There comes a certain time in life though when basically we want to derisk and live off our investments. HYP and City of London give you the means without having to think very hard. That is where I see the said IT having a use. But it is certainly easy money for Curtis and I have never bought its almost 'cult' status. I will not get into HYP again because this is not the Board for that.

Dod

[spiderbill]

As always it is much better to check the primary source (where available) instead of relying on secondary (summarised) data because it often contains errors. That's arguably the most important thing I learned in (of all places) my history degree!

I'd suggest that that is exactly the place to learn it. A course in historical research would do an awful lot of people in a lot of disciplines a world of good.

As regards whether it's worth holding something like CTY, I'm coming to the conclusion that diversification amongst different investment vehicles is a useful thing to embrace. The investing environment sometimes favours one and sometimes another so sometimes a tracker may outperform an IT and sometimes the reverse will be true. I'm leaning towards running HYP, ITs, ETFs, and OEICs. Watching the comparative results is interesting but unless one of them gets totally out of kilter not doing too much in the way of rebalancing because the environment could easily change against you, particularly when the lunatics are in charge of the asylum.

Spiderbill

[Avantegarde]

The figures I quoted were from the City KID document. This is the relevant bit:

"This table shows the impact on return per year.

One-off costs.

Entry costs 0% The impact of the costs you pay when entering your investment.
Exit costs 0% The impact of the costs of exiting your investment when it matures.

Ongoing costs.

Portfolio transaction costs. 0.03% The impact of the costs of us buying and selling underlying investments
for the product.

Other ongoing costs. 0.85% The impact of the costs that we take each year for managing your investments.
This will include the costs of borrowing money to invest but not any income or capital benefits of doing so, the ongoing costs of
running the company, stock lending (if any) but not the income derived from it, and the ongoing costs of any underlying investments in funds
within the Company's portfolio.

Incidental costs

Performance fees. 0% No Performance Fees are applied."

[doug2500]

My own take on this is that 5 years is not long term, just medium (as you said in the OP) and it has not been a typical 5 years at all. Although I accept that there may not be such a thing as a typical 5 years. A rising tide lifts all crap, or whatever the saying is.

As has been mentioned I will be interested to see what the difference may be after a bit of a wobble or downturn in the markets.

[SalvorHardin]

The figures I quoted were from the City KID document. This is the relevant bit:

"This table shows the impact on return per year.

One-off costs.

Entry costs 0% The impact of the costs you pay when entering your investment.
Exit costs 0% The impact of the costs of exiting your investment when it matures..."

These two figures are wrong; it is impossible for investors to buy or sell investment trust shares without incurring some costs. For example, the stockbroker's commission (and other fees, such as the cost for providing certificates and the Panel on Takeovers and Mergers levy on trades over £10,000), stamp duty on purchases and the market maker's spread. Also investment trust shares don't "mature" (the exceptions are things like zero dividend preference shares where there is a set maturity date).

I suspect that they can say that there is a 0% entry cost because of the way that "charges" are defined in this part of the KID. I reckon that because the investment trust itself does not levy any charges on the investor when they buy or sell, then in the KID our investor is deemed to pay a 0% entry and 0% exit cost on their investment. Which is of course complete cobblers because of the charges mentioned in the previous paragraph.

Perhaps someone from the FCA would care to explain how it is possible to pay no costs when buying investment trust shares, I'm sure that we would all benefit from knowing this

These KIDs increasingly remind me of the standardised pension projections that companies used to produce in the late 1980s and early 1990s for money purchase pensions. Back then companies were allowed to quote future values for investors' funds using standardised charging structures which bore little resemblance to what they actually charged. Then they could project funds at retirement using the historic fund performance of their best performing fund. So the less reputable firms were able to pretend that their policies didn't use the phenomenally high charging "capital units" (I remember seeing one with a 5% p.a. charge) and project using their best performing high risk fund.

[Itsallaguess]

As you obviously know, I feel quite strongly that there is only one type of money and I'll take as much as I can from the market no matter what the label on the tin says.

"Can I pay for the loaf with this fiver please?".

"Is it an income-fiver or a growth-fiver? I only accept income-fivers here".

Stupid eh?

Well I suppose a growth-fiver is exactly the same as an income-fiver, you're absolutely right.

Except when you've got to pay 50p trading costs to get your growth-fiver out of the market, and then it's only worth £4.50....

And except when you've had to sell an investment to generate that growth-£4.50 during a large market downturn, when what used to be worth £4.50 is now actually only worth £3.75....

And then you've got to make a decision as to exactly what you're going to sell to generate that growth-£3.75 that used to be a fiver.

And then you've got to decide when to actually make the trade to generate that growth-£3.75 that used to be a fiver.

But yes, apart from that, then it's exactly the same.....

Cheers,

Itsallaguess

[Alaric]

So the less reputable firms were able to pretend that their policies didn't use the phenomenally high charging "capital units" (I remember seeing one with a 5% p.a. charge) and project using their best performing high risk fund.

It was even worse than that. Someone in LAUTRO, the first incarnation of the regulator sequence that ended up as the FCA, got it into their head that you shouldn't use illustrations to compare potential contracts. The difficulty for with profits contracts of mapping an investment performance into future bonus rates was cited as a rationale. As a consequence every illustration said the same thing and worse still used charge levels which only the most efficient were likely to match. They were never called out for it, but the regulator should share blame for Pensions Mis-selling and endowment mortgage shortfalls. It was after Black Wednesday and Ken Clarke replacing Norman Lamont that Ken as the new broom at the Treasury decreed that own charge illustrations were to be mandated.

[Alaric]

HYP and City of London give you the means without having to think very hard.

ITs also do the legwork of setting an income level they believe to be sustainable, even in inflation adjusted terms. So that sets a level of safe drawdown which is always going to leave a legacy.

[Julian]

As you obviously know, I feel quite strongly that there is only one type of money and I'll take as much as I can from the market no matter what the label on the tin says.

"Can I pay for the loaf with this fiver please?".

"Is it an income-fiver or a growth-fiver? I only accept income-fivers here".

Stupid eh?

Well I suppose a growth-fiver is exactly the same as an income-fiver, you're absolutely right.

Except when you've got to pay 50p trading costs to get your growth-fiver out of the market, and then it's only worth £4.50....

And except when you've had to sell an investment to generate that growth-£4.50 during a large market downturn, when what used to be worth £4.50 is now actually only worth £3.75....

And then you've got to make a decision as to exactly what you're going to sell to generate that growth-£3.75 that used to be a fiver.

And then you've got to decide when to actually make the trade to generate that growth-£3.75 that used to be a fiver.

But yes, apart from that, then it's exactly the same.....

Cheers,

Itsallaguess

In case you think I'm a growth zealot about to try and shout down any counter view, about 80% of my investments are HYP and income investments trusts (including CTY - I was attracted by the stability that now over 50 years without a divi cut provides for at least that part of my income) but, having said that, there are ways to address or counter-argue pretty much every one of those points.

Trading costs - You don't sell £5 of growth when you need to spend it. I have actually introduced a growth (mostly passive tracker) portfolio alongside my income portfolio and when I start to draw more significant income from it I plan to do one single sale on the same day each year (last trading day of each calendar year) to generate 12 x the monthly income I want to extract from the portfolio for the upcoming year. That way I will have 100% confidence that, for the next year at least, all my "growth-fivers" that I will need will be available to me when needed. I would also add that for those people investing in passive trackers vs active income ITs the annual charges billed internally by the funds, hence fees that the investor still incurs in terms of deductions from returns, tend to be lower for passives which can act as a partial or complete counterbalance to the trading fees incurred in partial sell-offs.

Market timing - yes, but you're only looking at the negative. For instance on my scheme my self-enforced sell on a particular day might partially save me from holding on to a falling knife for too long or might force me into a sale at or near a market peak where without it greed and the "just hold on a bit longer" effect might make me miss the peak and sell at a less optimal point.

Deciding what to sell. I figure I can do that pretty easily by top-slicing to keep nudging the portfolio back towards the balance of original constituents I chose in the first place, or at least head the portfolio back in that direction each year. I would also say that unless one runs a completely Doris HYP and is unperturbed by big differences in weightings building up over time (e.g. now very BATS weighting in HYP1) then an HYP-er might well face rebalancing/top-slicing/top-up decisions as well.

Deciding when to sell - i refer you to my first answer/counter-point above.

As I say, I'm not dogmatic and can see both sides of the argument. I am however lazy and want my finances to be as hands-off and self-managing as possible which is why I did think quite hard about the various objections you raised and tried to come up with a scheme for running my growth portfolio, in particular extracting income from it, that made it pretty much as simple as my HYP/income portfolio to run. I'm happy with my solution.

- Julian

[Itsallaguess]

As I say, I'm not dogmatic and can see both sides of the argument. I am however lazy and want my finances to be as hands-off and self-managing as possible which is why I did think quite hard about the various objections you raised and tried to come up with a scheme for running my growth portfolio, in particular extracting income from it, that made it pretty much as simple as my HYP/income portfolio to run. I'm happy with my solution.

Well, 'objections' might be putting it a little strongly - shall we call them 'talking-points'? :>

Thanks though Julian, you (and even Fred's reply above yours, to a certain degree) make some valid and interesting points, and it's difficult to disagree with any of them, especially as I too have a fairly significant chunk of my overall investments in what I'd class as growth-stocks.

But so long as you can say that you can see both sides of the discussion, then that in itself proves the worth of the points I raised, in that a growth-fiver isn't necessarily always the same as an income-fiver, and that different decisions and considerations might well be needed, and concessions perhaps given (your own example of taking a full-years-worth of cash out of your growth-capital, and hence potentially allowing it to face more inflation-related issues for the whole period is a good example of such a concession...) between the two types of income-generation.

Always good to tease these issues out a little anyhow, and I wasn't wanting to criticise too much, but just trying to examine the 'growth-fiver is exactly the same as an income-fiver' point in some more detail....

Cheers,

Itsallaguess