JPMorgan Claverhouse

JCH has bounced back from COVID-19 losses, and yields 4.9%…

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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by JPMorgan Claverhouse. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

JPMorgan Claverhouse
Kepler Income Rated Fund

This trust is a constituent of the our income focused model portfolio... Find out more

JPMorgan Claverhouse (JCH) seeks to provide both capital and income growth from UK equities, and is one of the AIC’s dividend heroes, having grown its dividend every year for 47 years. The trust is run by William Meadon and Callum Abbot with a bottom-up stock-picking approach within a strong risk-control framework. The team believe it is this which has enabled them to outperform the benchmark in c. 70% of the quarters since 2012, when William took over management.

The team rely on a blend of quantitative and ‘human’ input into the investment process. However, William gives Q1 2020 as a prime example of when to disregard the inevitably rearward looking quantitative part of the process and trust the human element more. Anticipating a K-shaped recovery (with some companies performing strongly, and others poorly), the team dramatically re-positioned the trust during March, reducing cyclicality and buying companies that they expected to be more resilient.

Mindful that their ample revenue reserves (see Dividend section) could support the dividend, William and Callum pivoted towards those companies which they anticipated benefitting from the lockdown, irrespective of yield. This action has enabled JCH to recover more strongly than the benchmark, delivering NAV outperformance over the FTSE All-Share from 01/04/20 to 16/11/20 of 8%.

In the interims (as at 30 June 2020) the board reaffirmed their intention to declare an increased dividend for 2020 compared with that for 2019. Last year’s dividend of 29p per share is equivalent to a yield of 4.9% at the current price. Despite the high yield, JCH currently trades on a discount to NAV of 3.2% (as at 16/11/20).

Kepler View

William and Callum’s stock-picking operates within a strict risk management framework, which has historically helped deliver slow but steady outperformance of the benchmark. That said, 2020 has marked a deviation from this pattern, with high gearing contributing to marked underperformance in Q1 but stock picking driving strong outperformance in the subsequent two quarters.

The team’s fundamental analysis, and willingness change their view based on facts, has seemingly been the key driver of this recovery. JCH’s very significant revenue reserves have also indirectly been a contributor, enabling the team to invest for strong total returns rather than being tied to a process which requires them to invest for short-term income. The resulting pivot in the portfolio resulted in high portfolio turnover but has subsequently proven to be good news for shareholders.

JCH offers an attractive level of dividend with a strong track record of dividend growth. The substantial revenue reserves mean it is likely (although by no means guaranteed) that the trust will continue to grow distributions for the foreseeable future.

Since June 2020 JCH’s shares have de-rated to a discount of 3.2%. This perhaps reflects the appeal of high-growth investment strategies relative to equity income, but does represent a substantial narrowing of the discount since 2016. In normal market conditions, the board looks to repurchase shares at discounts in excess of c. 5%, which makes this an attractive entry point for core UK exposure with a strong track record of index-beating returns.

BULL
BEAR
High dividend yield, with a strong track record of dividend growth, backed by a deep revenue reserve Gearing higher than average for the sector, which can exacerbate downside (as much as amplify the upside)
Consistency of positive relative returns in recent years
Higher OCF than peer group, although future growth in net assets could mitigate this somewhat
Portfolio positioned for COVID-19 resilience
UK market could be negatively impacted by a no-deal Brexit
William Heathcoat Amory
William Heathcoat Amory is a co-founding partner of Kepler Partners LLP and leads the Kepler investment trust research team. William has 18 years of experience as an investment company analyst. Prior to co-founding Kepler Partners in 2008, he was part of the Extel number 1 rated research team at JPMorgan Cazenove.

Fund History

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

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