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City of London Investment Trust vs. FTSE 100

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
petronius
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City of London Investment Trust vs. FTSE 100

#246761

Postby petronius » August 24th, 2019, 1:15 pm

I have a significant fraction of my portfolio currently invested in a FTSE 100 tracker (VUKE).

With turbolent times possibly on the horizon, I am considering switching part of it to City of London Investment Trust (CTY).

The idea is that CTY, while fishing largely in the same waters, may offer more diversification in terms of sector exposure. Because of its capitalisation-weighted nature, FTSE 100 is heavily invested in miners, pharmas, banks. CTY is at liberty to allocate weights according to different criteria. Manager Job Curtis is well regarded and cosidered to be a cautious investor.

The price to pay is around 0.32% per year (0.41% CTY vs 0.09% VUKE annual fees).

Performance-wise CTY was similar to FTSE 100 (in capital appreciation and dividend yield) during the past 5 years, but performed substantially better than FTSE 100 during 2009-2014. Whether this 2009-2014 overperfomance was due to luck or skills, I have no idea.

Any thoughts?

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Re: City of London Investment Trust vs. FTSE 100

#246786

Postby TUK020 » August 24th, 2019, 4:34 pm

I have pondered the same question.

I have often wondered whether IT's ability to put income into reserves (to smooth dividend payments) means that they are less volatile than the nearest index, and whether they lag (in the timing sense) the index. This would mean that they are less likely to do as well in a rising market, but are likely to outperform when the market crashes. Also their ability to borrow means that they can go all in in the event of a crash.

If this were the case, ITs would be a good positioning when one has the feel that we are late into a bull market cycle.
CTY feels like a very good option at the moment, and I am wondering whether to liquidate some of my smaller company holdings to top up

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Re: City of London Investment Trust vs. FTSE 100

#246798

Postby JohnB » August 24th, 2019, 6:07 pm

CTY is often quoted as a good IT, but how much is luck, randomness and survivor bias. I’d be more interested in how it’s rivals have done collectively against the index, as anyone picking an IT now is likely to get average performance

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Re: City of London Investment Trust vs. FTSE 100

#246855

Postby petronius » August 25th, 2019, 9:13 am

I’d be more interested in how it’s rivals have done collectively against the index, as anyone picking an IT now is likely to get average performance


I agree, but which ITs would you include for a comparison with FTSE 100?

CTY itself has a rule that up to 20% of the fund can be composed of foreign shares - although I am not sure if that has been implemented over the years. It also fishes in FTSE 350.

However, CTY's affinity for large caps means that FTSE 100 seems like the best comparison (in the past five years the "tracking" is quite close).

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Re: City of London Investment Trust vs. FTSE 100

#246858

Postby richfool » August 25th, 2019, 9:28 am

As a holder of CTY, I've been a bit disappointed with its capital performance over recent years, as compared with its peers.

Take a look at its performance over the various time periods (compared to its peers):

https://citywire.co.uk/funds_insider/in ... ePeriod=12

I hold larger weightings in MUT and FGT than CTY, and a similar weighting in SHRS

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Re: City of London Investment Trust vs. FTSE 100

#246863

Postby Urbandreamer » August 25th, 2019, 9:49 am

I hold CTY, but I would be dubious about switching a FTSE 100 tracker to it for your reasons.

As you say, it's fishing in the same waters. However it has an objective, unlike the index. Very specifically it targets companies that pay dividends. In practice this means that you will still be holding Oil, tobacco, miners, pharmas and banks. There is nothing wrong with that, as I said I hold CTY. However you seem concerned that the index weights them quite so highly and hence a switch doesn't achieve your aim, rather it's a move in the oposit direction. Towards holding more of them.

IF you want a FTSE 100 tracker, then stick with that. IF you want to diversify, look elsewhere. If you want UK large company income, then go with CTY.

With respect to IT's and indexes, CTY does largely invest in FTSE 100 companies, but that's not true for ALL IT's. I also hold SMT and its performance is not and never will be "average". SMT is invested in very few companies, hence it could do VERY badly or repeat what it has achieved over the last few years and do quite well. I would argue that it is VERY different from it's benchmark and that you should not expect it to track that benchmark providing "average" performance.

Ps, if you are concerned about the turbulant times comming (I actually look forward to them) then you might want to research the new fund that JPMorgan are launching. JPMorgan Global Core Real Assets.

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Re: City of London Investment Trust vs. FTSE 100

#246872

Postby PrefInvestor » August 25th, 2019, 11:54 am

petronius wrote:I have a significant fraction of my portfolio currently invested in a FTSE 100 tracker (VUKE).

With turbolent times possibly on the horizon, I am considering switching part of it to City of London Investment Trust (CTY).


Hi Petronius, Not sure that I would consider swapping an ETF (which is very low cost and I feel can be relied on to track the index) with an IT (which is going to be more actively managed and have higher costs but is not necessarily going to track the index as accurately in future – assuming that you want that ?). Especially as changing horses is going to mean that you have to incur the transaction costs of buying and selling, which might be significant if you have a lot of money in VUKE ?.

If you are worried about an upcoming correction or a recession then just maybe its time to be thinking of investing in something other than a FTSE 100 tracker ?. But if that IS what you want then you seem to have a pretty good one. Personally I don’t see adding CTY as being likely to be a game changer performance wise myself. And if you are unhappy with investing in “miners, pharmas & banks” as you imply why not look for something that definitely doesn’t include them ?.

As they say “your money your call” though. i wish you the very best of luck in making your decision.

ATB

Pref

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Re: City of London Investment Trust vs. FTSE 100

#246905

Postby petronius » August 25th, 2019, 4:07 pm

Thanks everyone for your replies. I am a CAPE (Shiller) ratio - oriented investor, so at the moment I am happy to have more UK and Europe and less USA shares than a global tracker (based on capitalisation) would entail. As I mentioned, I am slightly worried about the sector distibution of the FTSE 100 but I agree that CTY is unlikely to depart strongly from the usual big suspects, so perhaps there is no reason to cough up the (admittedly reasonable) fees.

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Re: City of London Investment Trust vs. FTSE 100

#246922

Postby monabri » August 25th, 2019, 5:14 pm

petronius wrote:Thanks everyone for your replies. I am a CAPE (Shiller) ratio - oriented investor, so at the moment I am happy to have more UK and Europe and less USA shares than a global tracker (based on capitalisation) would entail. As I mentioned, I am slightly worried about the sector distibution of the FTSE 100 but I agree that CTY is unlikely to depart strongly from the usual big suspects, so perhaps there is no reason to cough up the (admittedly reasonable) fees.



I would have thought that now would be a good time to be looking to the East with Trump having a strop. For income, maybe something like Henderson Far East ( HFEL).

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Re: City of London Investment Trust vs. FTSE 100

#247220

Postby petronius » August 27th, 2019, 11:40 am

I would have thought that now would be a good time to be looking to the East with Trump having a strop. For income, maybe something like Henderson Far East ( HFEL).


Yes, I have an eye on that market after recent events. Would you recommend HFEL over a tracker for the same area? Fees are around 1% if I understand correctly so not the cheapest. Also they seem to have around 20% of the fund invested in financial, which may be good or bad depending on one's views.

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Re: City of London Investment Trust vs. FTSE 100

#247226

Postby richfool » August 27th, 2019, 11:55 am

This might be of interest, - a slightly historic article from the Money Mail (May 2019), showing IT's that pay a dividend of 4% or more, (CTY and HFEL are mentioned).
Revealed: The investment trusts that pay a dividend of 4% or more - and those paying out the most

https://www.thisismoney.co.uk/money/inv ... dends.html

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Re: City of London Investment Trust vs. FTSE 100

#247275

Postby monabri » August 27th, 2019, 3:12 pm

petronius wrote:
I would have thought that now would be a good time to be looking to the East with Trump having a strop. For income, maybe something like Henderson Far East ( HFEL).


Yes, I have an eye on that market after recent events. Would you recommend HFEL over a tracker for the same area? Fees are around 1% if I understand correctly so not the cheapest. Also they seem to have around 20% of the fund invested in financial, which may be good or bad depending on one's views.


I invested in HFEL primarily for the yield on offer along with a (hopefully, continuing) growing dividend. I hold ~4.4% of HFEL by value in my portfolio. HFEL is invested in many countries that are considered as "attractive" (Shiller-CAPE measure).

A tracker might deliver better long term Total Return (the costs will be cheaper) but that for me wasn't the objective.

As for the 20% in financials, well they've got to be invested somewhere - I guess that "financials" are the ones paying out the higher dividends (similar in the UK with companies like SLA/AV/LGEN/PHNX). So, perhaps one risk is that 20% of 4.4% is invested in financials.

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Re: City of London Investment Trust vs. FTSE 100

#248299

Postby richfool » August 31st, 2019, 9:48 am

Conscious that I have too many IT's (c 30) in my portfolios, yesterday I carried out a review of the performance and dividend yields of my UK G&I trusts.

I hold: CTY, MUT, SHRS, FGT, and have recently replaced ASEI with TIGT. (I also hold Mercantile for mid cap and SLS for small & mid cap exposure and some growth, but will ignore them for the purpose of this exercise.)

Looking at past performance (capital growth) over various periods I end up ranking them in this order (the highest growth first):

FGT
MUT
TIGT
SHRS
CTY

Thus I can understand criticisms of CTY's poor performance or that it can bark.

Now ranking them in terms of dividend yields, highest yield first:

SHRS
CTY
MUT
TIGT
FGT

Perhaps, understandably, almost a reversal of the first list. So I suppose it comes down to where one puts one's priority between income and growth (assuming past performance is a guide to future performance!!)

Additional points to consider:

Past performance is not a guide to future performance.
CTY has consistently increased its dividend yield of c 30 years and is likely to want to continue to do so.
FGT which has the lowest yield, but highest growth, has a conviction portfolio focusing on top quality stocks, with wide moats and is less concerned about dividend yield.
TIGT - I bought into most recently as it is currently taking a more cautious stance (in anticipation of a bear market, market falls recessions etc), which sits well with my thoughts. Historically it has produced better growth though has a lower yield.
SHRS with the highest yield, has a slice of Aberdeen Smaller Coys trust and holds fixed interest, therefore providing more diversity, but with the smaller coy exposure having pulled down its past performance (similarly to CTY).

MUT has provided a good balance between yield and growth and has outperformed CTY in terms of growth.

If I follow this through to a logical conclusion, it could bring me to sell CTY., but I probably won't.

If the Mods feel this would be better relocated to the Investment Trust board, please feel free to move it appropriately.

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Re: City of London Investment Trust vs. FTSE 100

#248335

Postby PrefInvestor » August 31st, 2019, 12:36 pm

richfool wrote:Conscious that I have too many IT's (c 30) in my portfolios, yesterday I carried out a review of the performance and dividend yields of my UK G&I trusts.

I hold: CTY, MUT, SHRS, FGT, and have recently replaced ASEI with TIGT. (I also hold Mercantile for mid cap and SLS for small & mid cap exposure and some growth, but will ignore them for the purpose of this exercise.)


Hi richfool, 30 is a lot of ITs. How did your trusts compare on a Total Return basis ?. That and annual income are the two things I focus on the most. Having a high dividend yield but losing far more than that through a big drop in the share price is not something thats acceptable to me. If any investment of mine falls to a 10% or more loss in Total Return terms then I typically sell and invest elsewhere - unless the drop is in line with whats happening everywhere else in the market. If everything is down 10% then obviously I dont sell everything, only stand-out poor performers.

Your gold investment must be doing well !.

ATB

Pref

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Re: City of London Investment Trust vs. FTSE 100

#248348

Postby richfool » August 31st, 2019, 2:09 pm

PrefInvestor wrote:
richfool wrote:Conscious that I have too many IT's (c 30) in my portfolios, yesterday I carried out a review of the performance and dividend yields of my UK G&I trusts.

I hold: CTY, MUT, SHRS, FGT, and have recently replaced ASEI with TIGT. (I also hold Mercantile for mid cap and SLS for small & mid cap exposure and some growth, but will ignore them for the purpose of this exercise.)


Hi richfool, 30 is a lot of ITs. How did your trusts compare on a Total Return basis ?. That and annual income are the two things I focus on the most. Having a high dividend yield but losing far more than that through a big drop in the share price is not something thats acceptable to me. If any investment of mine falls to a 10% or more loss in Total Return terms then I typically sell and invest elsewhere - unless the drop is in line with whats happening everywhere else in the market. If everything is down 10% then obviously I dont sell everything, only stand-out poor performers.

Your gold investment must be doing well !.

ATB

Pref

Hi ATB, Thanks for your thoughts.

I ought to have elaborated on the figure of 30 in my post. It's probably not as high as it sounds, in that the figure includes quite a few specialised or niche trusts to broaden diversification, gain exposure to particular sectors and where possible to provide inverse correlation with equities. For example, in addition to the 5 UK G&I trusts mentioned in my OP (and 3 Global G&I and 3 Asia Pacific trusts), the figure includes:-

Flexible/Multi-Asset trusts: 3
Prop REIT's (some specialised): 4
Renewable Energy: 2
Pharma's/Biotech/Healthcare: 2
Infrastructure: 1
Utilities/Infrastructure: 1
Gold ETF: 1
Gold Miner: 1

So ignoring the Flexible Multi-asset trusts there are 12 in the more specialised sectors.

I do monitor the level of income/yield of the portfolio and the performance in growth terms, though the latter is more difficult to calculate as I have been building/adding to the portfolio until recently.

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Re: City of London Investment Trust vs. FTSE 100

#249451

Postby bjmarren » September 5th, 2019, 7:10 am

Hi Pref,

Having a high dividend yield but losing far more than that through a big drop in the share price is not something thats acceptable to me. If any investment of mine falls to a 10% or more loss in Total Return terms then I typically sell and invest elsewhere - unless the drop is in line with whats happening everywhere else in the market. If everything is down 10% then obviously I dont sell everything, only stand-out poor performers.


I read the above with interest as I wondered whether people had some trigger whereby they would sell their investment and move on. Is this something you review on a continuous basis or as part of a annual or bi-annual review and do you apply to just ITs or single shares as well?

Brendan

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Re: City of London Investment Trust vs. FTSE 100

#249456

Postby JohnB » September 5th, 2019, 7:51 am

The classic answer for tracker/ITs is to believe you are in forever, and only sell when you need the money. But that doesn't help when you realise you've made a mistake and need to cut losses. To reduce emotional danger it would be best to review on a fixed schedule, rather than react to bad news in the papers. Anything less than annual rebalancing smacks of fiddling, and your transaction costs are starting to become significant.

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Re: City of London Investment Trust vs. FTSE 100

#249479

Postby tjh290633 » September 5th, 2019, 9:43 am

bjmarren wrote:Hi Pref,

Having a high dividend yield but losing far more than that through a big drop in the share price is not something thats acceptable to me. If any investment of mine falls to a 10% or more loss in Total Return terms then I typically sell and invest elsewhere - unless the drop is in line with whats happening everywhere else in the market. If everything is down 10% then obviously I dont sell everything, only stand-out poor performers.


I read the above with interest as I wondered whether people had some trigger whereby they would sell their investment and move on. Is this something you review on a continuous basis or as part of a annual or bi-annual review and do you apply to just ITs or single shares as well?

Brendan

I have a number of criteria for partial or complete disposal of a holding in my HYP, q.v.

The first criterion is to trim a holding back by 25% if the holding value exceeds a certain proportion of the median holding value. Note that the HYP is essentially an equal weighting composition at the outset, but share prices go any which way, often without much logic. Originally I set the limit at 10% of the portfolio value, then twice the median, and now 1.5 times the median as the number of holdings rose (35 at the moment), and as holding values rose. This may not apply to portfolios composed of ITs with variable weightings.

The others relate to the yield from holdings and require total disposal. The criterion is that the yield either falls to zero for some long time, or that it falls below half the market yield, say 2%. I do not normally look at total return, because this is very susceptible to share price movement and could lead to selling out in a bear market, which is better regarded as a buying opportunity.

TJH

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Re: City of London Investment Trust vs. FTSE 100

#249519

Postby Dod101 » September 5th, 2019, 11:27 am

tjh290633 wrote:The others relate to the yield from holdings and require total disposal. The criterion is that the yield either falls to zero for some long time, or that it falls below half the market yield, say 2%. I do not normally look at total return, because this is very susceptible to share price movement and could lead to selling out in a bear market, which is better regarded as a buying opportunity.


I always look at total return but do not often do much about it. If everything looks OK I generally hang on hoping that eventually the share price will catch up but we can wait a long time. See the tobaccos at the moment.

I of course look at capital values in context. If there is a bear market then obviously most shares are going to fall in value. We have had a bit of a bear market with most HYP candidates for a long while now which is why I have been reluctant to do anything very much.

Dod

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Re: City of London Investment Trust vs. FTSE 100

#249527

Postby Alaric » September 5th, 2019, 11:47 am

Dod101 wrote:We have had a bit of a bear market with most HYP candidates for a long while now which is why I have been reluctant to do anything very much.


The connection is that they become HYP candidates because the share price has fallen and the dividend hasn't. (Or is that hasn't yet?)

If you had a benchmark such as Real Yield on Indexed Gilts + 4%, the market as a whole, as measured by the yield on the FTSE 100 is now a HYP candidate.


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