JPMorgan Claverhouse 24 November 2021
Disclaimer
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) has a straightforward mandate that requires all of its investments to be listed on the London Stock Exchange. This makes it relatively unusual in the UK Equity Income sector, where trusts often have some flexibility to invest overseas. This means that investors who share the managers’ belief that the UK stock market is cheap by international standards are getting an undiluted exposure through the trust. In the managers’ view, the UK market is at a ‘once in a generation’ valuation discount to the rest of the world.
JCH’s managers have established a very consistent track record of outperformance of their benchmark. In their words, this is a “get rich slow” strategy, in which their stock-picking process delivers steady incremental relative outperformance. For example, as we illustrate in Performance, JCH has outperformed in the six quarters since the pandemic crash.
The past 18 months is as good an illustration as any of why JCH suits long-term equity income investors. JCH’s status as an AIC ‘Dividend Hero’ (48 consecutive years of increases) is well known, but the rate of increase historically puts it ahead of most equity income rivals. As we discuss in Dividend, JCH’s shares offer a prospective yield 4.1%, compared to the benchmark yield of c. 3.1%
The advantages of having a balanced barbell approach to portfolio construction, having exposure to both growth and value stocks, are typified by JCH’s performance since the pandemic induced market crash in Q1 2020. In a market that has seen several rotations between growth and value, it is no mean feat that JCH has outperformed in each quarter since then.
The investment process has delivered consistent, incremental outperformance and has now been afforded additional flexibility with a change to the risk management limits that allows the managers to express more conviction on individual stocks and sectors. When compounded, the high ‘batting average’ of outperformance means JCH has built up a strong long term track record.
Aside from outperformance, one of JCH’s key attractions is its dividend. As a ‘Dividend Hero’, the trust has an admirable record of growing its distributions. Whilst reserves supported last year’s dividend and may continue to do so this year, JCH’s revenues are bouncing back as we discuss in Dividend. The board have increased the quarterly interim dividends, and whilst the last decade’s dividend growth of 5.4% may not be matched this year, all the signs are that we can expect another year of an increased total dividend.
JCH’s shares trade on a small discount. With UK equity market valuations looking attractive compared to other equity markets, William and Callum’s track record of steady long-term outperformance make it a potentially attractive vehicle for investors wanting pure UK listed company exposure.
| BULL | BEAR |
| High dividend yield, with a strong track record of dividend growth, backed by a deep revenue reserve |
Gearing higher than average for the sector, which can exacerbate downside (as much as amplify the upside) |
| Consistency of positive relative returns in recent years |
Shares trade on a small discount; there is no guarantee the company will buy back shares when discount is wider than 5% |
| Portfolio balanced between growth and value, with UK market looking attractive by international standards |
UK economy might not recover as fast as some expect |
Fund History
