So I'm going to talk about City of London Investment Trust. I'll set the scene, talk about some of the advantages it has as an investment trust, also talk about performance and how the portfolio is currently positioned, how I'm seeing the outlook. So, move on to the first slide. So that picture is actually of the brewery that City of London originally was. It closed down in the 1930s, was on the River Thames, and turned itself into an investment trust at that stage. Our objective is to grow investors' capital over the long term, both income and capital. And I think one very important feature for an investment trust, I always mention the independent board of directors, it's also been a big feature of City of London. Our chairman is Sori Magnus, who's got a long career as a corporate financier and has been our chairman since October 2020. Also, ethics advice to the Prime Minister, he started doing that under Rishi Sunak and was carried on with Keir Starmer.
We have about 2.13 billion of assets at the end of December, which is the biggest trust in the UK equity sector, and we've been very popular over the years. We issue a lot of shares at a small premium to NAV, which means it enhances the NAV for existing shareholders, but we've also bought back at a tight discount to NAV. And as you've seen this year, we bought back some 8 million pounds worth of shares at a discount of between 2 to 3%, close to our NAV. So we try to reduce the share price volatility. Next slide, please.
I've been manager for a long time, since 1991. It's been a huge privilege. I can't think of anything better to have done for me. And I've worked with David Smith for over 10 years, and he was appointed deputy three and a half years ago. One of the functions of the independent board is we've got a very competitive management fee. It's only 0.3% of net assets, and our ongoing charges are the lowest in our sector. And another feature of an investment trust is that you can take out long-term debt. And when interest rates were very low, we took out some very cheap long-term debt. So we're borrowing only 2.67% out of 2046 and at 2.94% out of 2049, and those borrowings will secure cheap financing for our shareholders for the next quarter of a century. Next slide.
David and I work in the global equity income team at Janus Henderson, and you'll know some of my colleagues, but we're investing both in the UK and globally, and it's obviously very important to have that global perspective as well as focusing on the UK. Next slide.
So Janus Henderson was formed as the merger between Henderson, which was founded in 1934, and Janus, which is an American company, and we merged in about 2017. And it's worked very well, in particular Janus, you know, having that greater understanding of the US market, which has brought us, has been very useful. And also they've got some very strong analysts, and we're well known as having exceptionally good analysts, almost an academic level of understanding the companies, and obviously that's been very helpful. Next slide.
So just to recap on some of the benefits of the investment trust. There's revenue reserves, that's one of the levers we have for consistent dividend growth, and I'll talk a bit more about that in a minute. We can issue shares and buy them back, and we've already mentioned that. Then we've got the gearing, the cheap long-term gearing, which I've already talked about. Next slide.
So in terms of my investment philosophy, it's valuation-driven. So what's critical for me is share price valuation and whether it's reflecting the future prospects of a company or if it's, you know, overvalued, you know, then you might want to be taking profits. And so, you know, we start with dividend yield, we look at a range of factors, and, you know, we've got to be in companies that can grow their profits and grow their dividends and are investing enough for the long term. We don't want to be in the high-yield value traps which end up cutting their dividends. And the other aspect is it's a very conservative approach, and we like companies that generate a lot of cash, they're best able to support their dividends and invest enough for the future, and we like strong balance sheets, especially for cyclical companies. So we're looking at the downside risk as much as the upside potential. Next slide.
So a good example of, you know, this is one of my favourite companies, it's in the top five of our investments, Relx. You might not, may not be a very familiar company, it's one of the best companies in the FTSE 100. It provides information analytics for a range of businesses. I mean, it's used by 21 of the top 25 insurers, for example, and out of the top 10 banks. It's providing them with essential information and analytics so they can, you know, underwrite, you know, price underwriting, for example, or do identification and verification. So it's, and it's also number two globally in providing analytics and information to legal firms, and it's already using, it's already using artificial intelligence in that, in that division, and it's also the leader in providing information and journals to scientists and researchers. So it's a very strong company, and, you know, this is a UK-listed share, but you can see 58% of its sales in North America, 21% in Europe and UK, and the rest of the world is 21%. So just because you're investing in UK doesn't mean you're investing in the UK economy, you're often investing in very global businesses. Next slide.
So carry on. Next slide. So this chart shows you the long-term performance since I became manager in 1991. As you can see, we're well ahead of the index over the full 33 years. Actually, some of our best performance in relative performance has been in periods of down markets, but overall, you know, we are comfortably ahead, and we're also ahead at the end of December. We're ahead over 1, 3, 5 and 10 years against the benchmark index. Next slide.
So this looks back at 2024 just to get a feel of where the performance has been achieved when we were ahead of the index. And at the beginning of '24, we actually moved overweight in the bank sector for the first time since the financial crisis. And the reason for this is that the balances that banks have, UK banks have, they hedge their balances on a sort of five to seven-year basis. And these hedges they took out during periods of low interest rates, as they come up, they can re-hedge them at much more attractive interest rates, and that's been a very positive tailwind for the sector. And so NatWest was the stock we doubled our holding in, and it's actually performed exceptionally well as well as producing a big dividend increase. So that's been, so banks and NatWest were the biggest single positive. We like the tobacco sector for consistent dividend and profits growth, and Imperial Brands has taken advantage of it. A lot of people, it's a very unpopular sector for obvious reasons, but, you know, the shares were very, very cheap, and Imperial Brands has been buying back its own shares at a prodigious rate. It's bought back around 12% of its share count, and that's been very enhancing. At the same time, they can grow the dividend, and the dividend will cost less because the share count's down. 3i Group's an investment company in private companies and had a huge success with a discount retailer called Action in Europe. And 3i, we've actually reduced a bit in the second half of the year, but it's done very well. And then Tesco and IG Group the next biggest stock contributors. In terms of the areas which have detracted from performance, unfortunately I haven't held Rolls-Royce, which until then hasn't been paying a dividend, so I can possibly be excused for that. It's had a very big recovery, having obviously had a difficult period before that. Nestlé is a big Swiss food manufacturing company. It's done very well over the years, had a less good 2024. And then Schroders, TotalEnergies, the oil company, and Land Securities, the UK property company, were the other big detractors. Next slide.
In terms, I won't go through this in detail, but this just shows the new buys and complete sells over the 12 months. And just to highlight Aviva, which is an insurance company made up of Commercial Union, General Accident, Norwich Union combined many years ago. And, you know, it's had a difficult kind of 20-year period, but actually under new management, they've sold off peripheral territories and they're focused on the UK and Canada, and they're putting together a much better performance. So we're very encouraged by that. And BT, we've brought back in, where they're building out fibre, but that capex peaks in 2027. We think the cash flow will be very good following that. And we actually, in terms of the disposals, we've had a few takeovers in the portfolio, and DS Smith and Wincanton were two stocks that got taken over. We've also reduced some of our overseas-listed companies, such as Orange, in favour of BT, given a greater valuation, cheap valuation in the UK. And we had that difficult period, a couple of retailers, say Boohoo, ended up suspending its dividend, as did DFS Furniture, and we sold those. Next slide.
So moving on to the revenue, we've obviously got the longest record of consistent dividend increases of any investment trust, going back 58 years. And we've made use of the investment trust structure because basically with an investment trust you can hold back some of the income in a year, up to 15% of the income you receive, and put that into revenue reserve, and then you use that in the years when you get dividend cuts in the market. And if you go back to 2020, obviously up to the beginning of COVID with that lockdown, there were a lot of dividend cuts in the UK market. I think FTSE 100 dividends were down by 36% that year. And so we dug into our reserves. You can see we paid out 21% more than we earned. The following year we still had to pay out 11.8% more than we earned, but then the last three years we've covered our dividend. So we carried on growing our dividend throughout this period. And so it's a mixture of being in consistent companies and the investment structure which allowed us to consistently grow our dividend. Next slide.
So that chart just shows the 58 years of dividend increases going back to 1966. And I talked about being a conservative trust, well this just shows you how the income is spread through different sectors of the economy. So we don't have too much in any one area, as you can see. And I think that's really akin to not having all your eggs in one basket, and I think that does protect us. Next slide.
Next slide. So now I'll talk a bit about how I'm seeing the economic and outlook for the stock market. I think UK interest rates are on a downward path given that growth is so slow. I mean, the economy actually contracted by 0.1% in January, and certainly some of the measures taken in the October budget have not been helpful for growth, with the employers' National Insurance increase, for example. And in addition, obviously, the tariffs we're now getting from the US are very unhelpful as well. So I think it's a difficult period for growth, but unfortunately wage growth is quite sticky in the UK. The national minimum wage was increased by 6.5%, and that has a ripple effect through the wage structure. And so inflation is actually beginning to increase again. It's hit 3%, probably peak at 3.5% this year. So I think rates are falling, but, you know, it's going to be, I think that it's going to be maybe one or two cuts this year, no more. Growth, you know, has been better in the US, but the US economy is also sort of, the uncertainty caused by the new administration's policies is having an effect on confidence in the US as well. So I think it's quite a tricky period out there for growth generally, but I would say investors in the UK, it pays to hold on, there's terrific value there. In terms of, and I've got two charts. The first one is the price-earnings ratio of the market, compares the share price with the sort of profit per share, and that's actually in line with the long-term average going back to 2002. As you can see, it's kind of right on the long-term average. But looking at yields, for a long period fixed interest yielded less than equities. I've got a chart here, the dividend yield of the market and 10 and 30-year gilts in the UK base rate. Now equities yield less than fixed interest, but I think this is really a return to what it was for most of my career because basically dividends grow, and so you expect equity yields to be less than fixed interest. So I'm still comfortable with this relationship, and it was only a function of ultra-low interest rates that equities yielded more, which was sort of an abnormal phase in my opinion. But I think the real evidence of the value of equities, a number of takeovers we've had, I mentioned Wincanton, DS Smith, and we've also had Britvic more recently, and Endava, a tech stock. So, and that's just to mention some of the takeovers. There may be a load more across the stock market, and, you know, foreign companies and private equity firms taking advantage of cheap valuations. So I think, you know, given an attractive dividend yield, it will definitely pay to hold on in UK equities. Next slide.
So this just gives you a sort of characteristics of the portfolio. We are predominantly in large-cap stocks, mainly in the FTSE 100, always will be. We do have some ADR-listed companies, but we've reduced that. We were up at 17% three years ago and now down to 9%, given greater value in the UK stock market. The biggest sector weighting at the moment is banks, as I talked a bit about that. And then what's called technically investment banking, but it really means financial services. The biggest holding there is M&G, which is a mixture of life assurance and fund manager. Then we like the sort of personal care and grocery store, that's Unilever. Tesco is also in that sector. Oil is our fourth biggest sector with Shell our biggest holding now, and pharmaceuticals is our fifth biggest, with AstraZeneca being our biggest weight there. So those five big sectors make about 44%, so still a reasonable spread and reasonable diversity between them. Next slide.
So coming back to a point I sort of made earlier, but when you're investing in the UK stock market, you're not investing in the UK economy. And we can drill down to what the underlying sales of the companies in our portfolio are, and some 63% come from outside the UK, you know, mixed spread all over North America, Europe, Asia Pacific and emerging markets. Only 37% of the underlying sales is actually from the UK. Next slide.
So the top 10 holdings, you can see there are two banks in the top 10, HSBC and NatWest, and four consumer staples stocks. These are steady kind of multinational companies, very dependable profits and dividend growth: Unilever, BAT, Imperial Brands and Tesco. BAE Systems, our leading defence company, was our biggest holding at the end of June. I took a few profits in the fourth quarter of last year, but they've had another big move this year, and I think it's now our third biggest holding just by going up. And it's a very good company, and, you know, I'm certainly a very, very keen holder of it. And I think that we've had the end of the Cold War peace dividend, and BAE Systems is very much needed at the moment. Next slide.
This shows you the next 10 down. You've got our biggest utility, National Grid, our biggest miner, Rio Tinto, and the famous alcoholic beverage company. And, you know, Land Securities is our biggest real estate investment trust. Final slide.
So 58 years of annual dividend increase, it's the longest of any investment trust. We use the investment trust structure. We do pay it out of income. We don't believe in paying out of capital. That may work in rising markets, but aggravates your losses in a downturn. So we earn our dividend, but we use our revenue reserves in difficult markets for income. The ongoing charge is only 0.37%, which is the lowest in our sector, one of the lowest across the whole investment sector. And we've achieved long-term outperformance of the index through a conservative investment style. Thank you very much for listening. I'm very happy to take questions.
