New Performance Benchmark
City of London Investment Trust PLC
19 April 2005
THE CITY OF LONDON INVESTMENT TRUST PLC
HENDERSON GLOBAL INVESTORS
19 APRIL 2005
THE CITY OF LONDON INVESTMENT TRUST PLC
New Performance Benchmark
The Board of The City of London Investment Trust plc today announces a new
performance benchmark for the Trust which will take effect from 1 July 2005.
City of London's performance benchmark has, for many years, been the FTSE
All-Share Index, and it is against this Index that the Manager's performance is
assessed each year to determine whether a performance fee is payable. Since the
introduction of a performance fee arrangement with Henderson Global Investors in
2001, the Manager has outperformed the existing benchmark in three out of four
years, and for the six months ending December 2004 his performance is 2.53%
ahead of the benchmark.
The Board has become increasingly concerned, however, that the All-Share Index
has come to be dominated by a small number of very large stocks. Following the
expected consolidation of Royal Dutch Shell and its enlarged weighting, we
estimate that the weighting of the top five stocks could be as high as 34% of
the Index and, at the end of December 2004, the largest stock was 7.8% of the
Index. Ten years ago, the top five stocks represented only 15.3% of the Index
and the largest stock was only 3.5%.
The Board considers that it would not be prudent for City of London's portfolio
to be concentrated in a small number of stocks in the way in which the All-Share
Index is now concentrated. At the end of December 2004, only two stocks each
represented more than 5% of the portfolio. We also believe that the benchmark
against which the Manager is judged should be consistent with the historic
objective of allowing the Manager to manage the portfolio actively and ensure
that all stocks in the Company's portfolio and their respective weightings are
determined by the Manager's view of their income and capital growth potential.
We therefore intend that, from July 2005, the Manager's performance benchmark
will be the FTSE All-Share Index, adjusted for a maximum cap so that no single
stock will represent more than 4% of the Index. This level of 4% for the cap
approximately reflects the long term pattern of the highest weightings in the
FTSE All-Share Index, before the changes in recent years which have seen the
increasing dominance of a small number of very large companies. The Manager
will be free to invest more than 4% in any stock, whilst at the same time
controlling the overall risk within the portfolio. It should also be pointed out
that the Index adjusted for the cap will probably alter the industry weightings
relative to the uncapped index.
In addition, the Board intends to introduce into the performance fee
arrangements with the Manager an adjustment factor. This will modify the level
of any performance fee depending on whether actual shareholder total returns are
positive or negative in the relevant performance period. This will further
strengthen the link between the reward to the Manager and shareholder interests.
The new Index will be:
The FTSE All-Share Index - adjusted for a maximum 4% cap for any single stock.
It will be provided by FTSE International, the leading calculator of indices and
will be available from 1 July 2005 on www.cityinvestmenttrust.com.
Based on data provided by FTSE International for each of the five years to
December 2004, the Capped Index would have performed better than the FTSE
All-Share Index, in terms of both capital and income, and over the five year
period the Capped Index would have outperformed the All-Share Index by 6.44%.
Based upon this same data the Manager would have had a higher performance fee
hurdle, because of this outperformance, relative to the FTSE All-Share Index.
It should be noted that past performance should not be seen as an indication of
future performance.
The new performance benchmark will be incorporated into the Interim and Annual
Accounts for the year ended June 2006 onwards.
Enquiries:
Simon de Zoete, Chairman
The City of London Investment Trust plc
Tel: 07767 252 002
Job Curtis, Fund Manager
The City of London Investment Trust plc
Tel: 020 7818 4367
Julian Polhill / Penny Clarke
Polhill Communications
Tel: 020 7655 0520
This information is provided by RNS
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