City of London Investment Trust

MarcoM

Hi,

I have an investment with this trust which has generated around 5% in the past year or so.

I was wonderiong what folk on here thought of whether this IT would be suitable for a largish investment (i.e. 100k or so) for the purposed of generating a steady income
as part of an early retirement. More specifically, if one is interested in investing in an IT for income, would it be better to invest the lumps sum in one IT such as CTY London or should one look at a basket of investment trusts (assuming one is happy with a 5% ish return is the risk profile is reasonable).

Regards

tebbins

1. Depends on your circumstances, goals, risk appetite, situation, wider portfolio and where the £100k is coming from. A decision to buy x is a decision to sell y and a decision to not buy everything else.
2. Most folks prefer to rely on total return rather than just income, however this trust have been good at consistently inncreasing their dividend.
CTY comes up a lot in the forum, google "MSE forum City of London" or just search through the pages here for some opinions.

talexuser

I sold a large holding couple of years ago. It was a core holding but the UK market has been pants since the referendum and CTYs total return has tanked. I did not need the dividends so better returns are elsewhere. If income is the priority it could be a contender, but I would look for alternative "dividend heroes" (who have increased divis every year for many years) and compare the total returns.

Bravepants

Here are some "dividend heroes" that talexuser is talking about:

https://www.theaic.co.uk/income-finder/dividend-heroes

talexuser

Good Link by Brave.
I've had Witan and City but changed some years ago. Of the trusts I still have compare the capital growth after 5 years while withdrawing dividends.
Brunner 53%
Foreign & Colonial 51%
Alliance 47%
Bankers 44%
Caledonia 37% (although I count this a capital preservation part of portfolio)
compare with City of London 31%
City dividends may be higher than others so it is a compromise depending on your priorities, but over a possible 30 year retirement you have to keep an eye on capital reduction to protect against inflation.
 

masonic

100% in one trust would leave to exposed to significant manager risk.

gollum007

Talexuser's post shows the danger of comparing apples with pears....

His examples all have a dividend yield in the 1-2% range, compared to the 5% odd of CTY.
Over the quoted 5 years, this difference brings it back into much the same range of total return.

There's certainly (some) risk of manager trouble, and Job Curtis' length of service definitely makes this a bigger potential issue for CTY than perhaps some others, but over the course of a cycle this will probably IMHO balance out.

There are plenty of other trusts with a similar remit and record though, and taking this approach, I'd definitely have 2 or 3. Whilst approach has considerable duplication in the underlying holdings, it provides a useful smoothing effect in the case of a blip.

I personally have CTY, MRCH & LWI here.
(This also has the useful if tangential effect of near monthly dividends)

Bravepants

I've had CTY, MRCH, MYI on my radar for a while. Also just discovered SUPR (Supermarket Income REIT).

Bravepants

Incidentally, you don't necessarily HAVE to choose ITs with monthly income. You can have annual or quarterly dividends paid into a separate bank account and then set up a monthly standing order to your main current account. This is referred to as "income smoothing".

tebbins

Bravepants said:

Incidentally, you don't necessarily HAVE to choose ITs with monthly income. You can have annual or quarterly dividends paid into a separate bank account and then set up a monthly standing order to your main current account. This is referred to as "income smoothing".

That just means you have money uninvested for no reason, and you would still have to manually update the standing order with dividend cuts/rises every so often. Surely easier to drop the monthly income requirement and just keep a sensible cash float that dividends flow into to keep topped up. I track my money on a "total view" balance sheet but I can see why people who like to keep money in separate "pots" would prefer your suggestion.

Bravepants

tebbins said:

Bravepants said:

Incidentally, you don't necessarily HAVE to choose ITs with monthly income. You can have annual or quarterly dividends paid into a separate bank account and then set up a monthly standing order to your main current account. This is referred to as "income smoothing".

That just means you have money uninvested for no reason, and you would still have to manually update the standing order with dividend cuts/rises every so often. Surely easier to drop the monthly income requirement and just keep a sensible cash float that dividends flow into to keep topped up. I track my money on a "total view" balance sheet but I can see why people who like to keep money in separate "pots" would prefer your suggestion.

Surely your two arguments in bold are contradictory?  Your cash float would be uninvested.

When you say a "cash float" you are saying exactly what I am saying. It's not about keeping separate pots, it's about income smoothing...drawing a fixed sum each month from the cash float, which regularly gets topped up monthly, quarterly or even annually. If you are drawing an income you don't necessarily want the cash invested.