This is a marketing communication
Summarising the J.P. Morgan panel discussion from the Master Investor Show in March 2025, here we explore three different approaches to generating a dividend within J.P. Morgan’s investment trust range.
There is more than one route to dividend income - and for investors looking not just for a decent payout but for reliability and, ideally, steady dividend growth, it’s important to understand the different options.
In fact, income provision is one area where the investment trust structure gives it an inherent advantage over open-ended funds.
52 years of dividend growth
As Anthony Lynch, portfolio manager of JPMorgan Claverhouse Investment Trust (JCH), explains, open-ended funds have to pay out all the dividends they receive each year.
“These tend to increase over time, but they may fall in times of economic crisis such as the pandemic, so income streams can be volatile,” he says.
Investment trusts, in contrast, are allowed to hold up to 15% of dividends in reserve each year, and this can be used to top up natural income in challenging years, thereby smoothing payouts over the years.
For JCH, as a UK equity income fund, that capacity is crucial. The trust currently pays an attractive 4.8%¹ yield; but it is also one of the AIC dividend heroes², having grown its dividend payouts every year for the past 52 years. Dividend payments are not guaranteed but that is certainly a precious record to protect.
“Performance is our priority, but maintaining our dividend growth track record is really key too,” he observes.
We think that the UK remains one of the cheapest equity markets worldwide, so as Lynch points out, “we’re fishing in a pool that has a higher yield than pretty much anywhere else.”
But as active stock pickers, he and the team aim to outperform the benchmark FTSE All-Share Index.
To that end, they are seeking companies that not only pay higher dividends than the benchmark but are also well-placed to grow those payouts over the years; conversely, they aim to avoid those likely to cut dividends.
Importantly, says Lynch, the international nature of the UK market means that a weakening domestic market is not a huge problem for JCH’s portfolio, particularly as it seeks those businesses with better prospects than the wider benchmark in terms of cash generation or growing market share.
“Around 75%³ of UK listed company revenues are generated abroad, so we are able to provide exposure to global growth, but more cheaply than a global fund,” he notes.
The volatile US tariff regime imposed recently by President Trump’s administration does of course raise some concerns for JCH’s team. But they are dealt with on a case-by-case basis, and Lynch reports that in reality, “the impact is pretty limited for the companies we’re talking to.”
Enhanced dividend policy
There are other ways of delivering a sustainable combination of income and capital growth. JPMorgan European Growth & Income (JEGI), for instance, has adopted an enhanced dividend policy; it pays around a 4% yield⁴, based on net asset value (NAV) at the start of the financial year and paid quarterly.
However, as portfolio manager Tim Lewis explains, this distribution can be made up of a mix of dividends from holdings, reserves and capital. “It simplifies our portfolio decision-making, because we aren’t constrained by needing to seek out high-yielding companies,” he says.
“We can look across the whole market for the most attractive total shareholder opportunity, in terms of dividend growth, share buybacks and companies likely to be re-rated over time. It’s a big advantage.”
It has certainly worked to JEGI’s benefit: the trust tops the AIC Europe sector over one and five years in share price terms, as well as for five-year dividend growth and yield⁵.
European equities have enjoyed an upturn in their fortunes this year, after years of underperformance relative to other regions. Lewis puts that down to “the changing trajectory in growth expectations”, as European stocks do better than expected while other parts of the world, especially the US, do worse.
That is likely to be supported by the EU’s planned fiscal stimulus over the coming years. Moreover, despite these sea-changes in outlook, Europe still trades at a discount to other regions. “The valuation opportunity is still there, at market level, sector level, and among European companies relative to their global peers,” comments Lewis.
This relatively positive outlook also works in favour of European smaller companies, of which JEGI holds more than 10%⁶.
The “idiosyncratic opportunities” he’s spotting in the small-cap sector range from niche engineering businesses that will benefit from public sector spending but are currently in short supply, to market consolidation among smaller European banks.
Lewis argues that the more domestic focus of smaller stocks stands them in good stead as far as fiscal stimulus is concerned, but also means reduced exposure to international tariffs and the current uncertainties of global trade.
More generally, he says: “The tariffs are a big factor for us to consider, but we were already underweight the most exposed sectors – car manufacturers, spirits, luxury names and some industrials. We aim to reduce the macro risks as much as possible, so that good stock selection shines through.”
Going further afield for yield
Asia is a region historically associated with dynamic growth, but these days boasting an increasingly rich dividend culture. It enables JPMorgan Asian Growth & Income (JAGI) to pay a meaty 6% notional annual yield⁷, paid quarterly, on a similar enhanced yield basis to JEGI.
Investment specialist Emily Whiting points to rapid improvements in urbanisation and living standards for the region’s 4.5 billion consumers as the backdrop to a wealth of interesting growth-focused potential stock picks – many also paying attractive dividends. “We see a lot of opportunities in consumer businesses, financials and technology,” she adds.
Whiting highlights China as a part of the Asian market where “gradual improvement” has been visible recently as the global rotation away from US stock continues.
Tariffs are an obvious headwind; but, she suggests, “China does have the ability to roll out domestic policy that can soften and mute that impact. Overall, we’re seeing early signs of improvement in regard to the negative feedback loop that has been dogging it for years.”
The bottom line is that whether you’re seeking exposure to the UK, Europe or Asia, JPMorgan’s disciplined, quality-focused stock-picking approach means you don’t have to sacrifice long-term capital growth as an income investor.