Thank you very much, Dan, and good evening, everyone. I'm going to really focus on the sort of structural advantages of City of London, but I'll also talk a bit about how the portfolio is positioned and how I'm seeing the markets today. So if we move on to the first slide. So, City of London was actually originally a brewery company, and that picture you can see was the brewery of the City of London, which sat on the banks of the river. It was loss-making, and in the 1930s the board decided to sell the brewery, which was valuable and is now an office block, as you can imagine, and invest in shares, become an investment trust. But they still owned pubs until the 1960s, and in fact, when I first became portfolio manager in 1991, there were still a few pensioners who'd worked in the pubs who we paid pensions to, but unfortunately, obviously, they've all passed away now. And so for many years we've been, since the early 60s, we've been wholly invested in shares.
Obviously, one of the features I always emphasize, and you know, probably coming a bit from our long history, is having an independent board of directors. That's a key component of an investment trust. I have seven board meetings a year with the board, and they act as a critical friend. And I kind of present my investment strategy to them, and they ask very good questions. Our chairman is Solari Magnus, who has a long career as an investment banker, corporate financier, advising companies, and he's still an associate with Ebore. But he's also, two and a half years ago, he was appointed ethics advisor to the prime minister, who was Rishi Sunak at the time, and he's kept that post under Sakir Stal. It's a five-year term, and he deals with sort of controversies involving ministers from time to time.
The fund is managed by Janus Henderson, who I work for. Janus Henderson was a merger. Henderson's was who I worked for originally, which is a company going back to the 1930s itself. And it merged with Janus, an American fund management company, back in 2017. That's been a very good merger. Janus, you know, obviously having that extra insight into the US markets is very helpful, and Janus is particularly well known for the strength of its analysts, and I'll give a good example of that later. I've been fund manager since 1991, which is a very long time, and I'm immensely proud to have worked for this trust for such a long period. My deputy is David Smith, who I've worked with David for over 10 years, and he was appointed deputy in 2021, and we both work in the global equity income team at Janus Henderson, and the trust has assets of slightly over two billion. So in our sector, which is UK equity income, we are the largest trust in that sector within the investment trusts. There are other bigger investment trusts in different sectors, but we're the biggest in our UK equity income sector. Next slide, please.
So, just to talk about some of the aims, is we're predominantly invested in UK listed businesses, but actually our holdings are pretty global. Our goal is a mixture to both grow income, a growing annual dividend, and we've done that for 58 years, which is the longest of any investment trust. I'll talk a bit more about how we achieved that, but also capital growth, so provide an overall total return, and we invest in leading UK companies. They're often very global. We'll show you a bit more about that in a moment. We have courtesy independent board, a very low fee. It's only 0.37%, which is the lowest in our sector. And we also have a very conservative approach. We're aiming to provide a sort of smooth ride, relatively low volatility, albeit being invested in equities. And we favor companies with strong balance sheets and consistent dividend records. And we also use the structural benefits of the investment trust, and I'll talk a bit about that, using revenue reserves, gearing, and share issuance and buybacks to enhance returns. Next slide, please.
So revenue reserves, the previous speakers talked about this, but as she said, trusts in the good years can save up to 15% of their dividends or revenues and put them into a revenue reserve. And this comes in very useful in periods such as in 2020 when the FTSE 100, when dividends went down by 36%. And yet because we had revenue reserves, we could continue to grow our dividend for our shareholders. So this is a real advantage that investment trusts have. We also issue and buy back shares, and we've often been at a premium, and we've issued shares at a small premium which keeps the premium from spiking upwards. At the same time, when we've been on a discount, we've bought back at a discount. Typically, we've issued at a 2 to 3% premium, bought back at a 2 to 3% discount. And then Emma also talked about gearing, and we took advantage of the period when interest rates were extremely low to lock in really cheap borrowings for our shareholders for the next 25 years. And so we've borrowed out to 2046 at 2.67% and out to 2049 at 2.94%, which are very low, you know, extremely low interest rates to be borrowing at for such a long period of time. So I'll explore some of these themes in a bit more detail. Next slide.
So this just makes the point about the share buyback and share issuance. So we've traded in a relatively narrow band. You can see this goes back to March 22, and we've been as high as a 2% premium to our net asset value and as low as a 3% discount, but no greater than that. Next slide.
So I also talked about low-cost borrowings, and the average interest rate that we pay on those two fixed-rate notes, which I talked about a moment ago, is 2.84%. Well, that compares with base rates of 4.5%. We've got the Bank of England meeting on Thursday. I think they're going to decrease interest rates from 4.5 to probably 4.25, possibility 4.0. There's certainly obviously better news on the inflation front with the pound strengthening a bit against the dollar recently. Also, the oil price has fallen a lot. So at the same time, wage growth is still an issue, and so I personally think the Bank of England will tread cautiously, but certainly the outlook, the view in the market is that there'll be further interest rate cuts this year. So despite that, you know, the interest rate we're borrowing at, at 2.84%, is still way below what base rates are at the moment. And also, if you look at what the government can now borrow at, which is around, you know, 4.8%, around 5% for 30 years, in fact slightly more than that today, it obviously shows you that it was a well-judged move to lock in borrowings when interest rates were ultra low. Next slide, please.
So that's 58 years of dividend increase that goes all the way back to 1966. You know, obviously the country's faced some quite difficult moments in those 66 years, but I think it's in 58 years, and I think it's just a mixture of having consistent companies in the portfolio and also using the revenue reserves during the difficult times for dividends and saving a bit of the income in the good times, dividends, that's really delivered that 58-year record of dividend increases. I mean, if you actually look at the portfolio and drill down as to where the income comes from, you can see it's a sort of not having all your eggs in one basket principle in that it is a good spread of different industries. I mean, the biggest single sector for income is consumer staples. These are companies that make sort of basic everyday goods which people buy regardless, and the companies in this area tend to be very global that are held in the portfolio. So we're not kind of bound by the UK economy, and you contrast that with, say, consumer discretionary, which is the segment just above consumer staples. We've only got about 4.4% from consumer discretionary. This is a more cyclical area such as retailers or travel and leisure where, you know, demand swings, you know, in and out with the economic cycle.
One area we're particularly heavily in is the financial sectors. Our second biggest sector is banks, and this is a change for me in that we've had low exposure to banks from before the financial crisis for over 20 years, and about a year and a half ago we moved our weighting up in banks, and this is because of a phenomenon called a structural hedge, which basically the balances that banks own, the UK banks in particular, which have been hedged at very low interest rates, as their hedges come up, they're able to reset them at the much higher interest rates that are now prevailing. And this was some very good work done by our analyst at Janus Henderson, who convinced me to increase our weighting in banks, which actually proved well-timed, particularly buying into NatWest a year and a half ago. So banks is our second biggest sector, but if you actually group together banks with financial services and insurance, which are all kind of financial sectors, then you would come to some 36% of the portfolio. So, you know, we think financial services and insurance and banks is something the UK does well, and there's some highly attractive companies in here, both offering very attractive dividend yields like M&G or Legal & General in our view, or offering differentiated growth like Beazley, a Lloyd's insurer, where we've got a stake. So we like, you know, we like the financial services sector. Next slide, please.
This shows you the performance since I became fund manager in 1991, and we were well ahead of the All-Share index, which is our benchmark, the kind of main measure of the UK market, over that whole 33-year period. And we're also at the moment ahead of the sector index and also our competitors over one, three, five, and 10 years. And our best performance tends to be in more difficult markets, historically at least, with our conservative approach. Next slide, please.
So to give a snapshot of the portfolio, we've got about 80 holdings. I mean, we're a large trust, so we do find, particularly with getting exposure to smaller, medium-sized companies, it helps to have around 80 holdings. We're predominantly in the FTSE 100, which are the largest UK stocks, 81% there, 10% in the rest of the UK market. We've got 9% in overseas listed. That was a lot higher. We were allowed to go to 20% overseas listed. It's come down a lot because we've seen a lot of value in the UK. And you know, why is the UK looking such good value? Well, I think over the years, UK insurance companies and pension funds have moved heavily into fixed interest. They see it as a way of reducing the risks, matching their assets with their liabilities. And to the extent they're in equities, they've gone very global, and the UK is a small part of the global market. The global market's now dominated by the American index and the big American companies like Microsoft, on its own is worth more than half of the FTSE 100. And this is where a lot of, you know, both institutions, also private wealth managers and private investors have gone very global. And I think as a result, it's left the UK looking extremely good value, and UK companies are answering this in a way I'm going to show you, I think, in the next slide. If you move on to the next slide.
Just before that, I'll just mention one thing about the UK stock market, and that is that it is actually very global. So it's not as if it's bound up in the UK economy. This is looking at City's portfolio, and if you drill down to the underlying revenues of the companies that we invest in, some 38% come from the UK, with the rest of the portfolio, 62% is from overseas, with North America at 22%, and then you can see Europe 14, 15, and emerging markets 11%. And you know, the UK, I'll just talk briefly about the kind of prospects I see. I mean, the UK, the savings ratio is quite high at the moment. Interest rates are coming down. So, you know, the UK's got an issue with growth, for sure. But I think there is something in reserve there. I mean, America, I mean, the world is obviously waiting on, you know, what the president decides on tariffs, and I think only he knows what he's going to do next. But the tariffs could be quite damaging for the US economy in terms of both raising prices and also from a demand perspective, and it's hard to see kind of low-priced manufacturing like making trainers moving to America or the Americans wanting it to move there. Europe, interesting news today with the German elections, but I think we're looking for a fiscal stimulus in Europe which could improve growth. Asia Pacific, dominated by China and Japan, and huge growth in China in recent years, but probably slowing down on some issues with debt there in China. And then emerging markets, where I feel there's a lot of potential as less developed countries become more affluent, and this is the big opportunity for our Western companies to sell into these countries. And today marked a trade deal with India as well for the UK. Next slide.
So turning back to sort of what UK, so I mentioned previously that UK institutions have been selling UK equities and private investors have gone very global. So what have the UK companies done? Well, I've got two case studies from the portfolio, and basically they're buying back their shares in huge order. They're seeing huge value in their shares, and Shell is a good example. It's very comparable to Exxon and Chevron, the two US supermajor companies. And yet it's trading, depending which valuation measure you look at, at a discount of probably around 40% or possibly more compared to those companies. So it is buying its shares back in huge order for three years now. It's been buying on a quarterly, semi-annual basis. It's buying back just under 8% of its market cap. And at the same time, it's still yielding a 4.5% dividend, and it's growing its dividend by 4.1% this year. So actually, given it's buying back so many shares, the cost of the dividend is actually declining for the company. So this is City's second biggest holding. It's 4.9% of our net asset value or of the portfolio value. I mean, it's obviously an oil company, so it's going to be affected by what the oil price does, but it's got a very strong balance sheet, and it's the world leader in liquefied natural gas, which we think has a big role as a transition fuel as we move into a low-carbon world. So it's, you know, it cut its dividend back in 2020, which I was very upset about at the time, but it has, as you can see, recovered very strongly since that period. Next slide.
And my second example is actually a company called Imperial Brands, which is a tobacco company. And so you'd be surprised to see how well this share has performed. And it's got five main markets, of which the UK is one. And of course, the UK has announced a smoking ban for people born from 2010 won't be allowed to buy cigarettes when they reach the age of 18. And yet, Imperial Brands' other main markets are the US, Australia, and Spain. And yet, despite the smoking ban, and Germany is the other market, you know, despite the smoking ban in the UK, these shares performed extremely well, and they basically were exceptionally cheap. A new management team came in and basically have managed it much more to unleash value, and they're buying back at the moment about 5.5% of the company in terms of market cap in terms of share buybacks. It's got a 5.5% dividend yield. It's growing its dividend by 4.5%. It's our seventh largest holding. It's performing, you know, extremely well, and at the current rate, the whole company would have been bought back, obviously in theory and not in practice, by the time the UK smoking ban really bites. So it shows you can find value in the most unsurprising places. So next slide, please.
So this is City of London's top 10 holdings, and you can see a mixture of dividend yields. So you've got within the mix some quite low, a couple of quite low yielders. Relx, which is a business information company, a very high-quality company which I've held for many years, providing essential information to insurance companies, law firms, and also already using artificial intelligence in some of its operations, and, you know, really providing essential information analytics for companies, and a very consistent compounder grower. And then BAE Systems, which is our big defense contractor. I mean, its biggest market is actually the US, also obviously our main defense contractor in the UK, but a very big operation in Europe, and also huge growth opportunities in areas like Japan, and big operation in the Middle East, and also in Australia. So this company got heavily sold at the time when so-called ESG investing was the mania some five years ago, and we were able to build up our stake. And obviously with the Ukraine war three years ago, it sort of ended the post-Cold War peace dividend, and I think countries are recognizing the need to rearm and be providing essential service in that regard, and full of lots of good technology. And of course AstraZeneca, the other low yielder, our leading pharmaceutical company. And there are other companies, you know, other stocks in the top 10 there more for a mixture of yield and overall return, you know, like BAT, British American Tobacco, and Imperial Brands. We've also got three banks now in the top 10. I mentioned that I turned a lot more positive on the sector, and we've had very good dividend growth as well as decent capital returns over the last 18 months from three banks, which are HSBC, NatWest, and Lloyds Bank, which are in our top 10. So the top 10 make up just under 38% of the portfolio. So it's a reasonable spread with lots of value elsewhere in the portfolio as well. So next slide.
So to conclude, before I hand over to the next speaker, it's 58 years of annual dividend increase, which is the longest record of any investment trust. In fact, I know of no UK listed company that's got a longer record, there are one or two in America with a longer record. But as I said, we've achieved that through having consistent companies, companies that can regularly grow their dividends, but also in the bad years for dividends across the market, we've been able to use the investment trust structure and our revenue reserves in order to keep the dividend growth going. The ongoing charge, which includes the investment management fee and other expenses, is 0.37%, which is the lowest in our sector, which is the UK equity income sector, and in our view, very good value. And in addition, we've achieved a long-term record of outperforming the FTSE index, which is the kind of UK market as a whole, and we've achieved it through a conservative investment style. Thank you very much for listening.
