JPMorgan Claverhouse 27 May 2022
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 (JCH) offers an actively managed pure exposure to companies listed on the London Stock Exchange. This makes it relatively unusual in the UK Equity Income sector in offering undiluted access to UK companies, but it also stands apart because of its near unrivalled track record of increasing its dividend over 49 consecutive years. JCH offers a prospective dividend yield of 4.6% (see Dividend section).
JCH’s managers avoid making large, binary bets on sectors or styles, and instead pick stocks from different market segments to build a balanced portfolio, trusting their stock-picking abilities to add value over time. Within this, the team have a large degree of latitude afforded by the investment trust structure. JCH has significant revenue reserves, meaning that the managers are not constrained in terms of buying companies that pay low (or even no) dividend yields.
As we show in the Performance section, the balanced portfolio and stock picking approach enable JCH to perform well on a relative basis in a range of different market conditions. The consistency of outperformance delivered historically by the managers is impressive. William has now managed JCH in 40 quarters, which has seen JCH outperform the benchmark in 28 of them, representing a very creditable 70% hit rate.
JCH’s managers and board expect that the trust will generally offer a geared exposure to equity markets over time. The average has been in line with the managers’ stated neutral level of 10%, but net cash currently stands at 0.9%. Historically, gearing has meant that, notwithstanding the consistency we refer to above, JCH has suffered on a relative basis in market shocks, and Q1 2022 has been in line with this pattern.
Given JCH’s ‘pure’ exposure to companies listed on the London Stock Exchange, it can claim to have the longest track record of dividend increases for a trust solely invested in UK equities. Yet the rate of increase has also been attractive, with a rate of increase that has seen an acceleration over the past five years. The board’s policy remains to seek to increase the total dividend each year and, taking a run of years together, to pay dividends that at least match the rate of inflation.
This may make JCH attractive to income seekers but also to those who believe that the UK stock market is cheap by international standards and want an active manager to provide exposure. As we discuss in Performance, JCH’s track record is noteworthy, not least because of the consistency of outperformance the managers have delivered historically. William has managed JCH for a total of 40 quarters, with JCH outperforming the benchmark in 28 of them, representing an impressive 70% hit rate. In our view, this also represents a key attraction for shareholders who wish to have the benefits of an active manager without any of the ‘heroics’.
The advantages of having a balanced barbell approach to portfolio construction, having exposure to both growth and value stocks, are probably not lost on investors in the current uncertain environment. JCH offers a solid example of a dividend hero with the consistency of relative returns too.
- High dividend yield, with a strong track record of dividend growth, backed by a deep revenue reserve
- Consistency of positive relative returns over long term
- Portfolio balanced between growth and value, with UK market looking attractive by international standards
- Typically higher gearing than peers, which can exacerbate downside (as much as amplify the upside)
- Shares trade on a small discount; there is no guarantee the company will buy back shares when discount is wider than 5%
- UK stock market may remain on a discount to other markets indefinitely