City of London has announced its FUM as of 31 March for 3Q’19. They were positive on all counts, with strong markets complemented by net inflows into most strategies and outperformance as well. Overall, FUM grew by 11% to $5,268m, supported notably by the MSCI Emerging Markets Index, which was up 10%. The EM strategy also saw welcome net inflows of $45m, with Developed Markets receiving another $101m, and Opportunistic Value $7m. These three strategies also outperformed due to narrowing discounts and some positive NAV movements. The Frontier strategy was the exception, with no net flows and underperformance.

  • Operations: Fixed costs were unchanged at a monthly run-rate of £1.1m. Fund flows, unfortunately, brought the revenue margin down from 77 to 76 basis points. Nevertheless, the monthly operating profit before profit share/EIP still increased to £1.5m.
  • Board change: Due to other commitments, Mark Driver will be retiring from the board on 30 June, to be replaced by Peter E. Roth with effect from 1 June. The latter is a Managing Partner of Rothpoint Group llc and a trustee of the Guggenheim Credit Income Fund.
  • Valuation: The prospective P/E of 11.8x is at a significant discount to the peer group. The historical yield of 6.6% is attractive and should, at the very least, provide support for the shares in the current markets.
  • Risks: Although emerging markets can be volatile, City of London has proved to be more robust than some other EM fund managers, aided by its good performance and strong client servicing. Further EM volatility could raise the risk of such outflows, although increased diversification is also mitigating this.
  • Investment summary: Having shown robust performance in challenging market conditions, City of London is now reaping the benefits in a more supportive environment. The valuation remains reasonable. FY’17 and FY’18 both saw dividend increases and, unless there is significant market disruption, more should follow in the next few years.
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