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Manager of £1.5 billion trust buys St James’s Place

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Manager of £1.5 billion trust buys St James’s Place

City of London (CTY) investment trust manager Job Curtis has bought a stake in wealth management salesforce St James’s Place (SJP) attracted by its dividend yield and growth.

The stake represents a 1.1% position in the listed £1.5 billion UK equity income fund, run by Janus Henderson, and was paid with the money raised from issuing new shares at a premium price in the second half of last year.

Curtis used the proceeds of selling 6.8 million shares above net asset value (NAV) to top up positions in Rio Tinto (RIO) and BHP Billiton (BHP) as well as purchase new stakes in building materials distributor Ferguson (FERG) and St James’s Place.

Curtis (pictured) said the £4.9 billion company had delivered strong growth from its network of tied advisers, who are not independent as they can only recommend investments and life insurance from a restricted panel of providers.

‘I expect SJP to deliver a dividend yield of 5% over the next 12 months,’ Curtis said in a comment emailed to Citywire’s Investment Trust Insider. ‘It has experienced impressive growth in assets under management in recent years with its network of some 2,500 tied advisers.’

As of October, SJP’s assets had climbed above £100 billion, fuelled by strong demand from pension investors, who committed £2.2 billion in the third quarter of last year.

While this level of growth has been predicted by analysts and backed by fund managers, SJP has not endeared itself to everyone in financial services. Independent financial advisers are typically frosty towards its tied model, which they consider to be the last of a dying breed of direct sales forces rather than a client-focused wealth manager.

In 2017, consumer group Which? criticised SJP for failing to disclose its charges fully during 12 ‘mystery shopper’ meetings with its researchers. It said only seven SJP advisers mentioned ongoing charges with one telling its staff there are ‘no charges, there’re no fees, the only thing is, if you do anything, that’s when I would get paid’.

SJP denied the claims as ‘nonsense’ but Which? is not alone in expressing concerns. Baillie Gifford UK Growth (BGUK) fund manager Milena Mileva said last year that SJP’s charges were ‘too high’.

‘The level of the fees is very high and the level will have to come down over the next 15 years,’ she told a private investor forum in September.

Fees are also on the agenda at City of London with the trust using its half-year results to 31 December to announce a 10% cut in the annual management charge (AMC) it pays Janus Henderson.

The AMC has been reduced to 0.325% from 0.365% on the first £1 billion of net assets and 0.3% above that.

Chairman Philip Remnant said as a result ‘the ongoing charge for the year to 30 June 2019 is expected to be lower than the previous financial year when it was 0.41%’, underscoring its reputation as the cheapest trust in the AIC UK Equity Income sector where the average charge is 0.66%.

One thing Remnant and the City of London board make sure is not cut is the dividend, with shareholder payouts having increased for a record 52 years in a row. The shares currently yield 4.7% despite the trust racking up a negative return in the second half of 2018, in which equities had to contend with monetary tightening that slowed economic growth, a UK rate rise, and Brexit tension.

Including dividends, the trust reported a 10.2% total decline on net assets, although it did beat the FTSE All Share index, which shed 11%. The premium on the shares shielded shareholders to a certain extent with a total loss to shareholders of 8.9%.

A similar trend is evident in the longer-term performance with CTY shareholders receiving 24.7% over five years, ahead of NAV growth of 23.5% and 21.8% from the average UK equity income trust and 22.1% from the FTSE All Share.

The biggest contributors to the half-year performance were ‘fixed line telecommunications’, in particular Verizon Communications (VZ.N) and pharmaceutical holdings Merck (MRK.N) and Novartis (NOVN.S), although the ‘strong contributors were balanced by the adverse effect of being underrepresented in AstraZeneca (AZN) and not holding Shire (SHP)’, said Remnant.

More generally, ‘international defensive stocks outperformed’, including Nestle (NESN.S), Relx (REL), and Coca-Cola (KO.N), while housebuilders and real estate investment trusts detracted.

Remnant said the global economy was still growing but at a slower pace, and this year a flattening in the trajectory of US interest rates and lower oil prices would be ‘helpful for consumers’.

In the UK, the uncertainty around Brexit continued and ‘if there is a disorderly departure, it is likely that sterling will fall, which would be beneficial for the many UK-listed companies with overseas operations,’ said Remnant.

‘Dividends across City of London’s portfolio are expected on average to continue to grow at a satisfactory rate, yet the dividend yield of our portfolio remains considerably in excess of the yield in most areas of fixed interest and on bank deposit rates,’ Curtis added.

 

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