The last two years have shown how unpredictable life can be. The pandemic has had a major effect on our lives, on the economy and on companies. Although the economy is recovering, and our lives are getting back to normal, there are still plenty of unknowns facing investors, especially income investors. This is where an investment trust like JPM Claverhouse, with a strong track record of generating capital growth and rising dividends, comes into its own.
The trust’s managers Will Meadon and Callum Abbot take a prudent, medium risk approach which is well suited to turbulent market conditions. They aim for consistent growth and a rising income irrespective of market conditions. For this reason, Meadon describes it as a “get rich slowly” trust.
The managers build a diversified portfolio of their best ideas, comprising both growth and value stocks – shares of rapidly growing companies and those of more established businesses. They can tilt it towards either type of stocks as circumstances change.
They believe in the merits of both growth and value stocks as they can both perform well over the long term but not necessarily at the same time. They “move to different beats” says Will Meadon – when one type of share is doing well, the other may not. It means the trust is well suited to style rotations. Having a foot in both camps also provides it with inbuilt risk controls.
This approach has enabled the trust to do well in different conditions, whether bull or bear markets or times when there is a preference for growth or value stocks. It makes the trust an ideal “tuck-away” fund, that investors can rely on as a core UK holding.
There are a variety of investments in the portfolio, including both growth and value stocks, that have benefitted the trust recently. On the growth side, there are digital holdings such as IT company Softcat, retailers with good online presences like Dunelm and Next, and niche financial providers such as Impax Asset Management. On the value side, the managers see good prospects for domestic banks like Barclays and NatWest, oil companies Shell and BP, and housebuilders such as Barratt Developments.
The managers point out that the size of the trust, currently around £550m, is an advantage because it can be agile, changing direction when necessary to meet changing circumstances. It meant that when the pandemic struck in the first quarter of 2020, the managers were able to switch away from those companies that were going to have most difficulty with social distancing and working from home, such as pub chains and casinos, to those which were more resilient and likely to be able to cope with tougher times.
At the core of Claverhouse’s mission is its aim of providing investors with a steadily rising income, which is paid quarterly. This means investing in companies that will pay good dividends. The trust’s past record in achieving this goal is impressive. It is one of the AIC’s ’dividend heroes’, a status granted to those investment trusts that have increased their dividend for 20 or more years in a row. In fact, Claverhouse has achieved this feat for 48 consecutive years, which is the longest of any quoted investment trust invested solely in UK equities.
It has benefitted from the ability of investment trusts to build income reserves. They are permitted to hold back up to 15% of the dividends they receive in the good years which can be used to smooth out income payments when times get tough. In 2020 when many underlying companies cut their dividends, JPM Claverhouse was able to dip into its reserves to bolster its own dividend. And this has still left it with good reserves, equivalent to nearly a year’s worth of dividends, to underpin its income payments going forward.
Of particular interest to investors today in a period of rising inflation is that the trust also aims to increase its dividends at a rate close to or above the rate of inflation. It is currently the only UK equity income ‘dividend hero’ to have achieved dividend growth ahead of inflation every year for the last two decades.
To achieve this goal, the managers point out that they almost always invest in companies with pricing power. These are companies which are able to raise their prices in line with inflation, in order to cover their costs and preserve their profits, without reducing demand for their products.
In recognition of its past achievements, JPM Claverhouse – competing against open-ended funds as well as other investment trusts – was recently awarded the accolade of best UK Equity Income fund 2021 at the prestigious FTAdviser Investment 100 Club Awards1. These awards assess funds and asset managers on a quantitative basis, analysing short- and long-term outperformance as part of a set of strict screening factors. A panel of judges then scrutinises each category to pick overall winners.
1 The methodology and calculations used by companies that provide awards and ratings are not verified by J.P. Morgan Asset Management and therefore are not warranted to be accurate or complete.
