JPMorgan Claverhouse 09 February 2023

JPMorgan Claverhouse (LON:JCH) aims to generate capital and income growth exclusively from UK-listed companies, a strategy that has worked well in the past and one that has enabled it to raise the dividend for 50 consecutive years. As a result, it features amongst an elite group of investment trusts under the AIC’s ‘Dividend Heroes’ list.

The portfolio has been managed by William Meadon since March 2012; Callum Abbot became joint manager in January 2018, having worked alongside William on the team since September 2012. The managers are bottom-up stock pickers with an emphasis towards quality and value stocks and their style of management is prudent, avoiding making large binary bets on sectors or styles. They have freedom to invest across the market cap spectrum, but JCH is currently biased towards the large caps in comparison to the benchmark.

The strategy deployed by William and Callum has worked well, with JCH having an annualised return of 7.5% per year since they took over the management to 31/01/2023, beating the FTSE All-Share Index benchmark’s 6.7% return over the same period. However, outperformance over the medium and short term has been more difficult to achieve, given the turbulent conditions caused by the geopolitical environment and the pandemic.

Over the past five years, JCH’s Gearing level has averaged around 10%, a level the board suggests as being neutral. However, the managers have been quick to adapt the net gearing level depending on the underlying market conditions. Currently, gearing stands at approximately 7%, having been reduced to the low single-digits upon the outbreak of war in Ukraine. JCH offers a historic yield of approximately 4.7%, materially better than the benchmark. It currently trades at a discount of approximately 5% and has an OCF of 0.71%.

William and Callum firmly believe that UK-listed stocks trade at a wide discount, i.e. approximately 40%, in comparison to international peers and believe that this represents a once-in-a-lifetime opportunity to buy at such low valuations.

The team have demonstrated their adaptability to changing market conditions and, after war broke out in Ukraine, they quickly reduced gearing and transitioned the portfolio from having a cyclical bias to being defensive. In recent months, gearing has been raised again to take advantage of valuation opportunities.

However, the team’s prudent style of management means that they are likely to take a balanced approach to a potential recovery in the market and not risk hard-earned gains that have amounted over the long-term for investors. Their style of management means that the Portfolio is less likely to exhibit significant over or underperformance in any one period, but investors will value the consistent relative outperformance the managers have demonstrated over time.

We believe that JCH is attractive to investors looking for a good balance between long-term capital growth and income. It could serve as an investor’s core UK holding, given its large-cap bias that is somewhat balanced by growth exposures amongst the mid and, to a more limited exposure, small caps. JCH’s underlying portfolio income has been strong and, with a solid base of revenue reserves, we believe it is highly likely that JCH will continue to build on the recent milestone it achieved of 50 years of consecutive dividend growth.