City of London Investment Group strategies continuing to outperform (LON:CLIG)

City of London Investment Group plc (LON:CLIG) is the topic of conversation when Hardman and Co’s Financial Analyst Dr Brian Moretta caught up with DirectorsTalk for an exclusive interview.

Q1: City of London Investment Group recently announced its interim results. What were the main features?

A1: Given CLIG is a fund manager and stock markets were weak in 2022, it was to be expected that funds under management and revenues would decline. The latter did better than the former, supported by favourable exchange movements. Operational gearing meant underlying earnings after tax declined 25% to £8.99m.

Q2: How did inflows into the funds and fund performance do?

A2: Inflows were mixed across the strategies. Within CLIM, the International and Opportunistic Value strategies received net inflows, while Emerging Markets continued to see net outflows. The Karpus business saw small net inflows into its institutional business, while the retail operations saw the usual calendar-year-end redemptions.

Fund performance was generally good, with almost all the strategies continuing to outperform.

Q3: Any news on prospects for fund flows?

A3: Usually, they are a little cagey on prospects, just saying there is an active pipeline. However, it has not really attracted new assets into Karpus, despite it being over two years now since the merger.

Performance has been good, so they have decided to invest in adding business development capability. Despite the market backdrop, we are optimistic that there will be an improvement in the flows in Karpus, although this may be more in FY2024 than FY2023.

Q4: Otherwise, how are the operations doing?

A4: City of London Investment Group has run a pretty tight operation for many years. Expenses were adversely affected by the same exchange rate movements that supported revenues, but also ticked up a bit as we saw some of the investment described above.

Q5: Many of their investors are there for the dividend, how about the cash and dividends?

A5: Cash conversion, as usual, was excellent and the cash balance of £19.7m is more than adequate for the business. There’s another £7.6m of seed investments in new fund strategies too. The dividend is flat for the year.

Given market volatility, our expectation is that CLIG is more likely to announce further special dividends as surplus cash accrues rather than increase the dividend rate for now. Nevertheless, in our view, those holding for the dividend are unlikely to be disappointed.

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