This is a marketing communication. Please refer to the Investment Trusts information document and PRIIPs before making any final investment decisions.
The income and growth opportunity in UK large-caps
UK investors have enjoyed some excitement in recent weeks as the FTSE 100 hit a series of record highs1. This was in response to positive signs that global inflation could be easing, and that central banks may be reaching the end of their sustained period of rate hiking cycle.
The JPMorgan Claverhouse Investment Trust 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 aiming at generating consistent and growing dividends.
Exhibit A – UK Equity Income Investment Companies
Source: Numis Securities Research, Datastream, Company Data, Bloomberg, as at 19May2020.
Resilient income
The UK large cap market has been a particularly good hunting ground for income. Through careful stock selection and using the benefits of an investment trust structure, Claverhouse has been able to increase its dividend for 50 consecutive years.
The trust’s investment management team believes the UK market boasts a number of healthy dividends paying companies across a variety of sectors, and although it does not eliminate the risk of loss, it does give an important layer of diversification to the portfolio.
Exhibit B - UK equities cheap vs. own history and cheap vs. other international equity markets
UK Market price to Book (x)
Source: Datastream, Morgan Stanley Research. Data from 1 January 1980 to 27 October 2020.
Past performance is not a reliable indicator of current and future results.
The >30% discount for MSCI UK vs. MSCI World is at over 40 year low
Source: J.P. Morgan Asset Management using data from MSCI, I/B/E/S, Morgan Stanley Research. Based on PE (Price to Earnings),PBV (Price to Book Value) and PD (Price to Dividend). Average relative valuations use 12 month forward data where available. Data from 31 December 1974 to 31 May 2020.
Past performance is not a reliable indicator of current and future results.
Multinational growth
Another key attraction of the UK’s large cap market is its strong international focus, as 82% of revenues2 in the FTSE 100 index come from overseas. As a result, these companies are generally less impacted by the outlook for the UK economy and have benefited from more positive global tailwinds. For the Claverhouse trust, this has been in an important factor in driving capital growth.
Nevertheless, UK companies, continue to trade at lower valuations when compared to peers listed on other indices. Many of these are quality companies with strong balance sheets which, unlike some global peers, also offer healthy dividends. We highlight three companies with international exposure that are held in the Claverhouse trust portfolio.
2021 Long-Term Capital Market Assumptions expected returns in coming 10-15 years
Past performance is not a reliable indicator of current and future results.
Global growth through equipment rentals
Ashtead is a construction and specialty equipment rental company with operations in the UK and North America. Performance has remained strong despite wider economic pressures, in part due to the company’s ability to pass on much of its increasing cost burdens from inflation onto its customers. Meanwhile, demand for Ashtead’s products has been helped by increased government expenditure, particularly in the US, which accounts for over 90% of operating income3, and where there is still potential for further infrastructure spending.
Longer term, the rental opportunity in the US is particularly exciting. Rental penetration in the US is just 55% versus 75% in the UK but the gap is closing.4 While the US market is “highly fragmented”, the biggest operators, such as Ashtead, are gaining ground. We believe it’s a nascent market with a long road of growth.
Private equity firm with a long-term focus
British multinational private equity firm, 3i Group is an example of a company which we believe will continue to offer attractive long-term growth prospects despite ongoing market uncertainties. 3i owns companies that operate in four core sectors: Business and technology services, consumer, healthcare and industrial technology. It aims to target investments which it believes can double in size over their holding period and has an excellent track record of achieving this goal. 3i’s largest asset, Action, is a discount retailer which has proved remarkably popular wherever it opens stores.
While many private equity companies have been doing bigger and more expensive deals, 3i has remained focused on smaller transactions and bolt on deals for its existing portfolio companies. We believe this acute focus on valuation should help 3i to enhance their returns over the long run.
Scientific innovation driving sector leading growth
AstraZeneca has built a portfolio of life changing drugs across oncology, biopharmaceuticals and rare diseases. Unlike many peers, it has built up a significant emerging markets business, making it a truly global business.
AstraZeneca has fared well through the recent challenging macro environment, as its products are defensive in nature, with demand remaining constant through the economic cycle. It has also benefitted from one of the best pipelines in the industry. AstraZeneca consistently develops innovative drugs that transform patient outcomes. We’re confident that the company’s successful innovation will drive considerable earnings growth into the future.
The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.
More Insights
Investment objective : Aims to achieve capital growth from North American investments by outperformance of the S&P 500 index. The Company will predominantly invest in quoted companies including, when appropriate, exposure to smaller capitalisation companies, and emphasise capital growth rather than income. The Company has the ability to use borrowing to gear the portfolio within the range of 5% net cash to 20% geared in normal market conditions.
Risk profile : Exchange rate changes may cause the value of underlying overseas investments to go down as well as up. External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions. This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down. This Company may also invest in smaller companies which may increase its risk profile. The share price may trade at a discount to the Net Asset Value of the Company. The single market in which the Company primarily invests, in this case the US, may be subject to particular political and economic risks and, as a result, the Company may be more volatile than more broadly diversified companies.
The risk indicator assumes you keep the product for 5 year(s). The risk of the product may be significantly higher if held for less than the recommended holding period. In the UK, please refer to the synthetic risk and reward indicator in the latest available key investor information document.
1 Source: The Guardian, FTSE 100 hits fresh all-time high as inflation and recession fears ease.
https://www.theguardian.com/business/2023/feb/08/ftse-100-hits-all-time-high as of Feb 8th 2023.
2 Source: FTSE Russell, Overseas revenues – a boon for FTSE 100 performance, October 18th, 2022 -
https://www.ftserussell.com/blogs/overseas-revenues-boon-ftse-100-performance
3 Source: Ashtead Annual Reports and Accounts - FY22 Results (reporting year end is April 2022)
4 Source: Ashtead Website - https://www.ashtead-group.com/about-us/strategic-review/our-markets/#:~:text=Between%202010%20and%202022%2C%20increased,around%2075%25%20in%20the%20UK.
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