JPMorgan Claverhouse 18 September 2023
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.
To provide a combination of capital and income growth from a portfolio consisting mostly of companies listed on the London Stock Exchange.
JPMorgan Asset Management
William Meadon; Callum Abbott
Association of Investment Companies (AIC) Sector
UK Equity Income
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
JPMorgan Claverhouse (JCH) last year marked its 50th consecutive year of dividend growth. A leading ‘dividend hero’, it has provided the longest stretch of dividend increases of any trust which invests solely in UK equities. This means that JCH shareholders get an undiluted exposure to a market that the managers currently believe is at a very attractive valuation on an international basis.
William Meadon and Callum Abbot are fundamental stock pickers, but are always mindful of risks. 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. This explains the barbell approach, which sees JCH’s managers investing in companies capable of significant growth, but on the other side of the portfolio, also those which are able to distribute significant cash dividends.
The consistent alpha generated by their approach is illustrated in the NAV Performance statistics since William took over in 2012. Since then, JCH has outperformed in 31 out of 45 quarters, and the majority of the 14 quarters in which JCH has underperformed have been when a significant and unforecastable macro event has occurred. The prevalence of these macro events has dented the recent performance track record, but over the long term, William and Callum have outperformed.
Discounts across the investment trust sector have widened of late. However, one specific factor has resulted in JCH’s premium rating giving way to a discount this year (see Discount section), and the legacy of that remains in play. JCH offers a historical yield of approximately 5.2%, materially better than the benchmark’s figure. It currently trades at a discount of approximately 5.5% and has an OCF of 0.64%.
The strategy deployed by William and Callum has worked well over the long term, but outperformance over the medium and short term has been more difficult to achieve, given the turbulent macro conditions. The team have shown themselves adept at repositioning the portfolio to each new reality and, as we illustrate in the Performance section, periods post these macro events have historically seen good levels of subsequent outperformance from JCH. Active management and the design of the portfolio both contribute to this, so we see nothing to suggest that this pattern will not continue into the future.
JCH’s historical dividend yield at the current share price is 5.1%, which compares to the UK Equity Income peer group weighted average of 4.3%. This compares to the FTSE All-Share Index yield of 4.0% (Source: Bloomberg). Henceforth, we think shareholders should be reassured by the board’s stated dividend policy, which is to “seek to increase the total dividend each year and, taking a run of years together, to increase dividends at a rate close to, or above, the rate of inflation”.
At the current discount of 5.5%, investors might consider the shares attractive, given the potential for the shares to trade at a premium once again, assuming investor appetites return, combined with the potential for the board to protect the downside risks of the discount widening much further. In the meantime, JCH provides a low-cost (see Charges), actively managed exposure to UK equities, which are themselves relatively cheap by international standards.
- 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
- Whilst the board is committed to buying back shares when the discount is wider than 5% in normal market conditions, there are no guarantees
- UK stock market may remain at a discount to other markets indefinitely