Top fund manager Job Curtis reveals stock tips for 2018

Job Curtis, manager of the City of London Investment Trust, talks to Moira O'Neill about prospects for equity income investing and where bargains can be found.

Moira O'Neill, editor of Moneywise magazine, owned by interactive investor:

Hello, I'm Moira O'Neill, editor of Moneywise, and today I'm talking to Job Curtis, manager of the City of London Investment Trust. We're going to talk about prospects for investors in 2018. Job, thank you for talking to Moneywise. I wondered if you could tell me a bit about what you think the challenges are for investors this year?

Job Curtis, manager of the City of London Investment Trust:

Well, we've had a very easy monetary policy in recent years, with very low interest rates across the world, and we're beginning to see signs of increase. We had one increase last year in the UK and several in the US, and so I think that's a challenge as interest rates start to go up, and as also central banks stop buying bonds, government bonds, as they have been doing in recent years. And the other challenge I would highlight would be disrupted technology: companies such as Amazon coming into traditional areas of retailing, for example, and I think that's something we have to be aware of.

Moira O'Neill:

Right, so the search for income is going to be a key theme, and your trust is providing income to investors. What are the prospects for income investing?

Job Curtis, manager of the City of London Investment Trust:

Well, I think they're fairly good at the moment. You've got synchronised economic growth across the world, and growth not just in America and the UK, but also now in Europe, powering ahead, and also continuing in Asia Pacific, and this is a good backdrop for companies to both grow their profits and their dividends, so I'm quite optimistic about dividend growth at the moment, and certain sectors which have been in the doldrums from a dividend point of view are really bouncing back, like the banks, and also the oil companies and mining companies. So overall, I think it's a good outlook for dividend growth for maybe mid-single digits going forward.

Moira O'Neill:

Now, you're focused on the UK, and obviously we've got a key issue, Brexit, at the moment, which many Moneywise readers have singled out as something they're worried about; how's that going to affect investing this year?

Job Curtis, manager of the City of London Investment Trust:

Well, obviously there is a lot of uncertainty in terms of knowing exactly what the relationship with the EU will be for the UK once we exit, and that's still not known, and we've got a negotiation coming up. Obviously, with the UK stockmarket, you're looking at over 70% of profits come from overseas, and many of the companies are big, global companies, so overall, I think we should be relatively unaffected, and I think the big indicators tend to be the pound, our currency, and when the referendum result came in that we were going to leave the EU, the pound suffered a sharp fall, and it tends to move in relation to how the negotiations are going.

So last year, we obviously made some progress, and the pound actually rose a bit against the US dollar, so that tends to be the big indicator. But actually, to the extent that the pound falls, that's quite good news for the many UK stockmarket companies, those companies which do have overseas earnings, because the earnings get in translation, in increase by a fall in the pound. So it's quite complicated, but it's not all bad news for investors. In some respects, stockmarket investment's a good place to be.

Moira O'Neill:

So what levels of income can you get from the UK stockmarket?

Job Curtis:

Well, overall, the UK stockmarket, as measured by the FTSE All-Share, which is the main measure of the index, is around 3.6%, so it's a pretty competitive dividend yield compared to what, for example, you might get in an alternative investment such as bank deposit accounts at the moment.

Moira O'Neill:

And do you think that's sustainable?

Job Curtis:

Well, yes, as I was saying, I think the economic growth we've got out across the world is very helpful for the big global companies that make up the index, and also, the UK economy continues to grow at a steady pace, which is positive for the more domestic companies, and certain sectors, like banks, for example, and mining, are in much better condition than they were a few years ago. So overall, I am quite optimistic about dividend growth going forward.

Moira O'Neill:

And where are you finding the main opportunities?

Job Curtis:

Well, because we've got this very strong synchronised global growth that is positive for the big global companies, I'm certainly seeing opportunities also amongst the more domestic stocks, and ... give an example, real-estate investment trusts, looking at, say, land securities, and ... which are now the two biggest ones, were on discounts of around 30% of their net asset value, so that looks like an attractive opportunity amongst the more domestic stocks.

Moira O'Neill:

And what about the big companies in your portfolio? What kinds of companies do you hold?

Job Curtis:

Royal Dutch Shell is our biggest holding. We also hold BP; we have HSBC and Lloyds in the banking sector in our top 10, but we like the consumer products companies, consumer staples; these are global companies like Diageo, Unilever, British American Tobacco, which have produced very consistent growth over the years and have got a lot of presence in emerging markets, where we see secular growth, so it's a fairly diversified portfolio.

Moira O'Neill:

Great, so, Job, you've been investing for many years; what's your tip for a beginner investor, someone starting out this year?

Job Curtis:

Well, equities produce the best return in the long run, but they are more volatile, as we all know, the stockmarket does go up and down on a daily basis. So for any new investor, I would definitely take a longer-term view; I would look at investing in equities for a minimum of five years; I wouldn't contemplate it for less than that unless you're speculating.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.