Job Curtis, Fund Manager of The City of London Investment Trust, explains why he believes overseas interest in the UK equity market could be an indication of value opportunities in domestic equities as he discusses the Trust’s latest portfolio activity; and why this may be good news for long term investors. Job also explains why he is “cautiously optimistic” for the future of the UK market as it appears highly attractive from an income point of view.

Transcript

Q: Hello and welcome to this latest video update for The City of London Investment Trust. I’m delighted to be joined by the fund manager Job Curtis. Job, thank you very much for joining me today.

Now firstly what can you tell us about U.K. equity markets over the summer months?

A: Well I think two particular developments I would want to try to your attention. First of all we’ve seen a few takeover bids from foreign companies for U.K. companies in particular Greene King was one which we hold in City of London’s portfolio; we’ve held it for a long time. It’s a brewery and pub company, most the value is in the ownership of its pubs and it’s been bought by Li Ka-shing’s operation from Hong Kong. He’s one of the richest, probably the richest businessman in Hong Kong and got a particularly shrewd reputation. So the fact these foreign investors, and other examples, Cobham a defence company, is being bid for by an American firm and Merlin International by another overseas firm. So it maybe indicates value on offer in U.K. equities at the moment.

And the other thing is just how low bond yields are, the government bond yield in the UK has fallen to record lows around 0.6% at the moment, it has been lower than that. And in Europe the 10 year government bond yields are negative for many countries such as Germany and France and Switzerland. This indicates pessimism about growth prospects going forward and very low inflation; partly due to the rise of Internet commerce.

Q: In terms of the portfolio have there been any interesting movements that you can share with us?

A: Well yes I think there is a lot of value in some of the U.K. domestic sectors selectively and so we’ve added to some of our holdings in the housebuilding sector. In particular Persimmon we’ve added to and Taylor Wimpey which were on highly attractive dividend yields and I think the prospects are good for nationwide house building.

We’ve added a bit to the banks particularly Barclays and Lloyds Banking which look very cheap at the moment partly depressed by Brexit concerns. But I think this could be an opportunity for long term investors.

So overall the portfolio is predominately in large international companies. We made a couple of new holdings, Senior which is a medium sized company in aircraft components and also National Express which has Bus and Coach operations in the UK and Spain and the US. We sold out of Centrica which is in a very difficult area of retail gas and electricity. Also we sold out of Unibail-Rodamco which is Dutch listed in shopping malls where there’s a lot of pressure on rents and capital values.

Q: What is your feeling generally on the UK market as we head into the final months of 2019?

A: Well I mentioned how low bond yields are and it obviously reflects interest rates with the base rate of the Bank of England Bank Rate at only 0.75% and so very low deposit rates in bank accounts. I think this shows you the opportunity where companies, and the companies in our portfolio in my opinion are in good shape; and with attractive dividend yields and the market overall yielding around 4% makes it highly attractive from an income point of view relative to fixed rate interest rates or bank deposits.

And so overall I am cautiously optimistic. I think this interest from overseas buyers in UK equities does indicate some fundamental value. So there is obviously a lot of political uncertainty at the moment and massive uncertainty over Brexit but I think we need to focus on the companies and I’m satisfied with the companies across the portfolio and they certainly look attractive from an income point of view.

Glossary

Inflation: The rate at which the prices of goods and services are rising in an economy

Yield: The level of income on a security, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, this is calculated as the coupon payment divided by the current bond price.