The UK economy has been getting a lot of bad press of late, with criticism focused on the economy’s underperformance relative to the US and other developed countries. However, things may not be as grim as the media would have us believe. Recently revised UK GDP data show that contrary to previous figures, GDP has now surpassed its pre-pandemic level, and is growing at a pace comparable to its largest European neighbours. The Composite Purchasing Managers’ Index, which is a more forwarding looking indicator, suggests that UK economic activity, although currently slowing slightly, is running at levels very close to readings for both the US and Europe, while UK government debt, at just over 100% of nominal GDP, not much higher than Eurozone government debt, and well below the US level of almost 120% of GDP.
Yet UK equity valuations are still very low
However, despite such evidence, the perception persists that the UK economy is lagging its peers, and this is almost certainly one reason why UK equities are currently so out of favour with investors at home and abroad, to the extent that the UK market is now the cheapest developed market in the world. The UK market valuation is also low compared to the US and Europe, and individual UK stocks offer great value relative to their US counterparts. For example, oil and gas producer Shell, drinks company Diageo and British American Tobacco are all UK blue chip, mature global businesses, whose revenues are mostly derived from overseas markets. Yet they are trading at knock down prices.
Low valuations won’t last too much longer
Just like the current misconceptions about the UK economy, we believe that these ultra-low valuations won’t linger forever. If history is any guide, domestic and foreign investors should eventually return to the market to snap up bargains. Alternatively, competitors and private equity firms may step up takeover activity, or UK companies may simply increase buy backs of their own shares to increase shareholder returns.
Claverhouse: Targeting the best of British
For investors keen to take advantage of current low UK valuations, before it’s too late, JPMorgan Claverhouse Investment Trust (known by its ticker JCH) offers diversified exposure to great British businesses. The Company’s benchmark is the FTSE All-Share index, but JCH invests mainly in FTSE 100 companies, with a focus on income generating companies that provide consistent and growing dividends. Its managers adopt a ‘barbell’ approach which seeks to strike a balance between growth and value stocks. This approach gives the managers flexibility to adjust the portfolio in response to market developments. It also means the Company’s performance is less volatile than the returns of funds focused solely on value or growth strategies, which can be left stranded when the tide of market favour ebbs.
Delivering consistent outperformance
The merits of this barbell strategy, and the managers’ stock selection skills, are confirmed by JCH’s very consistent long-term performance. Since its current strategy was adopted in March 2012, the Company‘s NAV has realised outright average annual total returns of approximately 8% per annum*1 and outpaced the benchmark by 0.8% per annum*2, while its share price has outperformed by 1.5% per annum*3.
50 years of growing dividends
In addition, JCH has also delivered 50 consecutive years of dividend growth – a claim not many investment companies can make. Since 1972, compound dividend growth has totalled 8.8% per annum, higher than dividend growth of 6% per annum for the UK market, and even further above average UK inflation of 4.9% pa over this period.
JCH’s dividend pay-outs to shareholders are supported by portfolio income from diverse sectors of the UK market, currently led by banks, which are well-capitalised and benefiting from higher interest rates. The Company is committed to maintaining its long record of rising dividends, and the managers are confident about the outlook for dividend payments from portfolio companies. However, JCH has strong revenue reserves, amounting to approximately a year’s worth of dividend payments, which it can draw on to support dividend payments as required.
…and a lower ongoing charge
In sum, JCH offers investors diversified exposure to the many great, but undervalued, companies that comprise the UK market. It’s very strong, and smooth, performance track record should interest those seeking capital gains and shelter from market volatility, while its dividend policy provides a reliable, competitive and rising dividend. And to add to its potential appeal, the Company has just lowered its ongoing charge by 10bp to 45bp on the first £400m of assets under management, with the charge of 40bp thereafter, making it even better value for shareholders.
The JPMorgan Claverhouse Investment Trust plc has been helping investors tap directly into the long-term growth potential of UK large cap stocks since 1963. The trust focuses on attractively valued, high quality stocks with the ability to generate consistent and growing dividends.