JPMorgan Claverhouse 23 November 2020

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).

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.