How does the ETF compare to the investment trust?
In the landscape of UK equity income investments, two prominent choices for investors are the iShares UK Dividend UCITS ETF (IUKD) and The City of London Investment Trust (CTY). While both aim to provide income and capital growth from UK-listed companies, they represent fundamentally different approaches: passive index tracking versus active management. This distinction is crucial in understanding their total return profiles over various periods.
Recent Performance at a Glance
Based on the latest available data, here’s a snapshot of their recent total return performance:
| Period | iShares UK Dividend UCITS ETF (IUKD) – NAV Total Return | The City of London Investment Trust (CTY) – NAV Total Return | The City of London Investment Trust (CTY) – Share Price Total Return |
| Year-to-date (YTD) | ~20.4% | – | – |
| 1 Year | ~19.2% | ~15.1% | ~19.2% |
| 3 Years | ~60.3% | ~44.0% | ~44.6% |
| 5 Years | ~109.1% | ~92.4% | ~97.9% |
| 10 Years | ~68.4% | ~109.8% | ~106.8% |
Note: Data is as of mid-October 2025 and sourced from fund providers. Past performance is not indicative of future results.1
Dissecting the Numbers and Strategies
IUKD, as a passive exchange-traded fund (ETF), mirrors the performance of the FTSE UK Dividend+ Index.2 This index comprises the 50 highest-yielding stocks within the FTSE 350, excluding investment trusts.3 Its strategy is straightforward and transparent: to capture the returns of the UK’s top dividend-paying companies.4 This approach has proven effective in the shorter term, particularly in periods favouring high-yield stocks.
CTY, on the other hand, is an actively managed investment trust with a history stretching back to 1861.5 It is managed by Job Curtis, who has been at the helm for over three decades.6 The trust focuses on a portfolio of predominantly large-cap UK companies with a strong track record of dividend growth.7 This active management allows for flexibility to navigate different market conditions and select companies that the manager believes have long-term potential beyond just a high current yield. The long-term performance of CTY, particularly over a 10-year horizon, showcases the potential benefits of this active approach.
Key Differences Influencing Total Returns
Several factors contribute to the differing total return profiles of IUKD and CTY:
- Management Style: IUKD’s passive nature means its performance is directly tied to its underlying index.8 CTY’s active management allows for stock selection based on in-depth research and a long-term outlook, which can lead to outperformance or underperformance relative to a benchmark.9
- Portfolio Composition: While both focus on UK dividend stocks, their top holdings show nuanced differences. IUKD’s portfolio is dictated by the index’s methodology, leading to a focus on the highest yielders at a specific point in time.10 CTY’s manager has the discretion to invest in companies with a consistent history of dividend growth, even if their current yield isn’t among the absolute highest.
- Costs: As a passive ETF, IUKD generally has a lower ongoing charge (around 0.40%) compared to the actively managed CTY (with an ongoing charge of approximately 0.37% but active management comes with other costs).11 Over the long term, these cost differences can impact total returns.
- Discount/Premium to NAV: As an investment trust, CTY’s share price can trade at a discount or premium to its Net Asset Value (NAV).12 This can impact the shareholder’s total return, as seen in the one-year figures where the share price total return was higher than the NAV total return, indicating a narrowing of the discount or a move to a premium. ETFs like IUKD typically trade very close to their NAV.
Conclusion: Which is the Better Choice?
The choice between IUKD and CTY for total returns depends on an investor’s philosophy and time horizon.
For investors seeking a low-cost, transparent way to gain exposure to high-yielding UK stocks, and who are comfortable with the inherent volatility of such a strategy, IUKD has demonstrated strong performance, particularly in the shorter term.
For those who favour a long-term, actively managed approach with a focus on companies with a proven ability to consistently grow their dividends, CTY presents a compelling case, as evidenced by its strong 10-year track record.13 The long and successful tenure of its fund manager provides an element of stability and experience.14
Ultimately, a thorough analysis of both options in the context of an individual’s investment goals and risk tolerance is essential before making any investment decisions.