JPMorgan Claverhouse (JCH) invests solely in the UK equity market. The trust has an enviable track record of dividend growth which now stands at 47 consecutive years, and it is the only UK equity income ‘dividend hero’ to have achieved dividend growth ahead of inflation in every year of the past two decades.
Managed by the highly experienced William Meadon and (since January 2018) Callum Abbot, the investment process emphasises a bottom-up stock-picking approach. When William took over the trust in 2012, he enacted a slight evolution in the strategy to make it more concentrated than it has been historically. The portfolio will typically hold between 60 and 80 stocks, and it is currently at the lower end of that range. The managers remain bullish on the prospects for the UK market, and this is reflected in the current gearing level.
JCH is described by its managers as a ‘get rich slow’ strategy, aiming for consistency of outperformance with as few surprises as possible for investors. Certainly, the stock-picking approach has paid off for investors over the long term – JCH has outperformed in 70% of quarterly periods since William took the reins. The cumulative effect of this is that returns have been strong relative to the FTSE All-Share.
The shares currently yield c. 3.8% and with ample revenue reserves, the team are confident the fund can continue its track record of providing inflation-beating dividend increases in the coming years. The board has taken a more active approach to discount control in recent years, and JCH currently trades on a discount to NAV of 1.9%.
JCH offers an attractive level of dividend with a strong track record of dividend growth. The substantial revenue reserves mean it is highly possible (although by no means guaranteed) that the trust will continue to grow distributions for the foreseeable future. In the immediate term, this year the trust’s revenue account is likely to benefit from twin tailwinds of lower interest costs as well as a 10% management fee reduction.
Combined with the prospect for attractive dividend growth, the managers have demonstrated that their stock-picking approach (within a strong risk framework) has delivered consistent outperformance relative to the benchmark. Gearing has been employed intelligently – as witnessed by the adroit positioning prior to, and during, the Q4 equity market fall.
The UK equity market offers some excellent global companies, arguably at a significant discount to international peers thanks to the political uncertainty surrounding Brexit. The managers have therefore been positioning the JCH portfolio to benefit from this. The barbell approach of owning some high-dividend payers and some low payers with better growth prospects, and the desire to own a portfolio of companies that ‘move to different beats’, means that the portfolio should not be overly exposed to market rotations or changes in style (e.g. growth/value leadership).
The trust currently trades at a small discount to NAV. We believe that entry at these levels could be attractive for a core UK exposure with a strong track record of index-beating returns.
|Strong track record of dividend growth, backed by a deep revenue reserve||Though growing, yield is not particularly high|
|Consistency of positive relative returns in recent years||Higher OCF than peer group, although fee reductions should mitigate this somewhat|
|Management fee being reduced going forward||Gearing can exacerbate the downside (as well as amplify the upside)|