City of London Investment

29 January 2025
By Maynard Paton

FY 2024 results summary for City of London Investment (CLIG):

• Another very subdued performance, showing revenue up 1%, profit down 1% and the annual dividend unchanged for the third consecutive FY after client withdrawals of $320m left average funds under management (FuM) just 3% higher.

• “Constructive meetings” continue with 31.5% shareholder George Karpus, who now carries “high hopes and high expectations” for CLIG — despite the group failing to achieve its sole KPI after client-fee rates dropped 3bps while salaries climbed an average 6%.

• Long-term client CAGRs of just 5-7% may reflect the inherent limitations of CLIG “exploiting the discount volatility” of UK investment trusts, and raises awkward comparisons to cash/bonds, the S&P 500 and sector activist Saba Capital.

• While new clients remain elusive, plans to reduce expenses by $2.5m — albeit mostly through non-staff costs — alongside a stronger USD should help sustain this FY’s barely covered GBP dividend.

• The subsequent H1 2025 witnessing further client withdrawals of $564m reinforces CLIG’s ‘value trap’ credentials, underlined by a share price that is back to 2007 levels and currently paying a 9% yield. I continue to hold.

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10 July 2024
By Maynard Paton

H1 2024 results summary for City of London Investment (CLIG):

• A subdued performance due to ongoing market “headwinds”, with funds under management (FuM) and revenue up 2%, profit down 5% and the dividend kept at 11p per share for the fourth consecutive H1. 

• CLIG blamed further FuM withdrawals of $294m on higher deposit rates and appealing index trackers, although the follow-up Q3 statement reported a bumper $224m inflow as clients reappraised the group’s “compelling” portfolio valuations. 

• A “strategy of engagement” with unhappy major shareholder George Karpus has led to welcome cost cuts, yet the staff profit-share continues to edge higher and doubts persist about whether CLIG is run for the benefit of employees instead of shareholders.

• Other questions from this H1 concern the effectiveness of the salesforce, the reduced disclosure on fee rates, the necessity of a main-market listing, the revised testing for goodwill impairment and the failure to meet the group’s sole KPI.

• While CLIG’s own projections point to earnings that just about support the 33p dividend and 9% yield, publishing USD accounts but declaring GBP dividends may confuse the 1.2x payout-cover policy. I recently bought more and continue to hold.

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19 December 2023
By Maynard Paton

AGM summary for City of London Investment (CLIG):

• CLIG’s largest shareholder George Karpus voted against the group’s non-execs at the AGM and declared “this board should be replaced with a seasoned group of directors that understand the enormous potential of CLIG“.

• My subsequent conversation with Mr Karpus revealed a somewhat alarming lack of board action following reduced funds under management, dwindling fee rates and a dividend he believes may become “questionable“.

• “They are not client driven” was how Mr Karpus summarised the absence of significant new mandates. Greater cross-selling between group divisions CLIM and KIM was still required, too.

• Mr Karpus explained how a corporate cash-management service could lead to “tremendous opportunities” that might add an extra £1b-plus to CLIG’s funds under management during the next five years.

• Mr Karpus also expressed frank views about the group’s approach to corporate governance, its use of consultants, the over-exposure to Russian shares and employees still working from home.

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15 December 2023
By Maynard Paton

FY 2023 results summary for City of London Investment (CLIG):

• Ongoing market “headwinds” caused average funds under management (FuM) to decline 12% to $9.2b, which led to revenue dropping 16% and profit diving 29%.

• New USD reporting may expose CLIG’s prior progress benefitting from a weaker GBP, with the GBP dividend unchanged since FY 2021 versus the USD equivalent down 11%.

• Significant new clients remain very elusive, with FuM outflows of $357m during this FY prompted by higher deposits rates and CLIM funds returning 3% (or less) five-year CAGRs.

• The profit-share proportion increasing from 24% to 26% during a difficult FY raises further questions about employee pay and the likelihood of additional pressure on profit margins, earnings and ultimately the dividend. 

• While CLIG’s own projections point to earnings of 34p per share that just about support the 33p payout and 10% yield, achieving the group’s total-return KPI to FY 2024 is looking increasingly uncertain. I continue to hold.

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01 July 2023
By Maynard Paton

H1 2023 results summary for City of London Investment (CLIG):

• “Choppy” market conditions causing funds under management (FuM) to slide 18% to $9b led to revenue dropping 9% and profit diving 26%.

• Significant new clients remain very elusive, with H1 outflows of $107m negating the inflows enjoyed during FY 2022 and aggregate withdrawals reaching $404m at merger partner KIM.

• Rising staff costs represented 42% of revenue following a 24% profit share, and questions remain as to whether i) employees rank ahead of shareholders, and ii) the total-return KPI really stretches management.

• The follow-up Q3 update admitted fee rates had declined from 73 to 71 basis points, as clients seemingly chip away at charges after perhaps watching the cheaper S&P 500 continue to outrun their CLIG portfolios.

• Reduced FuM, lower fees and greater expenses now point to earnings of 34p per share that just about support the 33p dividend and 7.8% yield. Capital gains meanwhile look dependent entirely on a broad market recovery. I continue to hold.

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21 October 2022
By Maynard Paton

Results summary for City of London Investment (CLIG):

• Rough market conditions causing funds under management (FuM) to fall 17% to $9.2b led to H2 net fee income dropping 5% and H2 profit diving 20%.

• A post-year update showed FuM sliding a further 8% to $8.5b, but also the fourth consecutive quarter of net FuM inflows that may signal clients re-appraising CLIG’s ‘value’ approach.

• Buying SPACs at discounts to cash helped merger partner KIM outperform the original CLIM division with 6% five-year annualised returns versus 3-4%.

• Revenue “100%” denominated in the stronger USD, handy cash conversion plus net funds and investments of £30m counterbalanced an H2 margin squeezed to ‘only’ 42%.

• Near-term earnings could now be running at 36p per share, which should still support the 33p per share dividend and 8%-plus yield at 400p. I continue to hold.

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19 June 2022
By Maynard Paton

Results summary for City of London Investment (CLIG):

• The Karpus merger ensured impressive headline progress, but this H1 performance was almost identical to the preceding H2 as funds under management (FuM) remained at $11b.

• Wishful thinking perhaps, but two consecutive quarters of net FuM inflows following consistent FuM outflows may signal clients re-appraising CLIG’s ‘value’ approach.

• Rough market conditions during the subsequent H2 will test CLIG’s investments, with FuM dropping 13% to below $10b not indicating obvious outperformance.

• A wonderful 49% margin and net cash of £25m funding a welcome £7m special dividend suggest the accounts can survive any further market weakness.

• Although the possible P/E is 11 and the yield tops 7%, the shares have been rated modestly for years as major new clients remain extremely elusive. I continue to hold.

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24 February 2021
By Maynard Paton

Results summary for City of London Investment (CLIG):

• Very buoyant markets alongside the Karpus merger helped funds under management (FuM) reach a record $10.9b and lift the dividend by 10%.

• Client ‘rebalancing’ led to FuM withdrawals and, despite fledgling strategies attracting new money, overall fund flows remain frustratingly low. 

• Recent leadership retirements have not led to any dramatic changes and shareholder information has remained reassuringly comprehensive.

• The Karpus merger has raised the group margin to an astonishing 55%, but future bonus-pool arrangements could reduce such profitability.

• The possible P/E is 11 and near-term yield might top 7%, although the shares have been valued modestly for years and a sustained re-rating remains very elusive. I continue to hold.

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