JPMorgan Claverhouse 05 June 2024

JPMorgan Claverhouse (JCH) has an intelligently assembled portfolio, offering a risk-conscious exposure to the UK equity market. Managers William Meadon and Callum Abbot are fundamental stock pickers, but as we discuss in the Portfolio section, they avoid making big binary bets on sectors or styles, instead aiming to deliver outperformance of the index in a steady, risk-controlled manner irrespective of market conditions.

The investment process, honed over many years, has delivered good returns over time. As we discuss in the Performance section, Will and Callum have outperformed in 66% of the quarters since Will took on the management of the trust in 2012. This consistency is echoed in the dividends that JCH has been able to pay over this time, and over a much longer period. Indeed, JCH has the longest track record of dividend increases of any trust investing solely in the UK at 51 years, putting it near the top of the leaderboard in the AIC Dividend Heroes list.

Will and Callum believe that the best way to continue to deliver progressive annual dividend increases is to grow JCH’s capital, as well as invest in companies with attractive dividend yields. They accept that no one can know what the future holds, so irrespective of how high their conviction is in one stock or sector, they aim to maintain a balanced portfolio that has growth and value characteristics. The team have a resolute focus on quality, rather than trying to invest in turnaround stories or companies that have highly leveraged balance sheets.

Discounts across the investment trust sector remain wide, and JCH has not been insulated from this. Given that in normal market conditions the board looks to repurchase shares at discounts wider than c. 5%, the current discount of 5.1% may have an element of protection from a further derating. With management fees having been reduced from mid-July 2023, the full effect of reducing the OCF has yet to be reflected in the official charges figure, which as we discuss in the Charges section, we estimate will fall to 0.65% next financial year.

We share the managers’ view that this is an exciting time to be investing in UK companies, given the whole market is out of favour with domestic and international investors. The signs that valuations are attractive can be seen in takeover announcements and bids that are increasingly making the headlines. An early election offers the prospect of political certainty, and with interest rates likely having peaked it is hard not to argue that we may be entering a period where the wind is at the backs of UK equity investors. As we discuss in the Portfolio section, JCH has plenty of hallmarks that mean it is a good potential vehicle for investors to harness this opportunity, without making an outsized bet on any particular sector or investment style.

The strategy deployed by Will and Callum has worked well over the long term, particularly in delivering relatively steady quarterly outperformance. It is unfortunate that unforeseeable macro events have impacted their five-year performance numbers, but if we have a relatively benign period for equity markets, the trust’s Gearing and balanced approach to portfolio construction should allow JCH to claw back the marginal underperformance and start to show outperformance again.

JCH’s historical dividend yield at the time of writing is 4.7%, which compares to the peer group weighted average of 4.1% and the benchmark yield of 3.6%. The Board’s stated dividend policy is to seek to increase the dividend each year and, taking a run of years together, to increase dividends at a rate close to, or above, inflation. A high yield and a discount to NAV of 5.1% means shareholders are arguably in a good place to wait for the release of what the managers believe is the ‘coiled spring’ of UK equity markets.