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City of London has announced a pre-close update for FY’20. While the third quarter of the financial year was tough for markets, the final quarter saw a strong bounceback. FUM increased by 25% to $5.50bn. After a volatile year in both directions, the net movement over the year as a whole was a 2% rise, with net inflows offsetting weak markets. The Developed Markets strategy was the standout, with inflows equal to 76% of the FUM at the start of the year. The EM strategy continued to see slow but steady outflows, although there have been signs of improvement in the second half of the year.

  • Performance: Despite the market volatility and widening of discounts across the board in CEFs, the two largest strategies outperformed over the year as a whole. The smaller Opportunistic Value and Frontier strategies both underperformed.
  • Karpus: At the general meeting, shareholders overwhelmingly approved the transaction. Completion is still expected to be on or around 1 October, as originally announced.
  • Valuation: The 2021E P/E of 9.2x is at a discount to the peer group. The underlying 2021E yield of 7.2% is attractive, in our view, 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 increasing 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. With the expected EPS boost from Karpus in 2021, the prospects for future dividend increases look very good.


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