Investors seeking to inflation-proof portfolios and tap into the re-rating potential of the undervalued UK equity market, with further Bank of England rate cuts among the catalysts, should consider putting to money to work with JPMorgan Claverhouse (JCH). This UK Equity Income sector mainstay boasts a 52-year track record of uninterrupted dividend growth and there is every reason to believe the company can sustain that run for another half century and more, since JPMorgan Claverhouse’s new managers have increased their focus on sustainable dividend growers across the market cap spectrum.
A 6.3% discount to NAV (net asset value) shows there is value on offer at this quality-infused trust whose annualised NAV returns have beaten the FTSE All-Share benchmark over three, five and 10 years. Quarterly dividend-paying, JPMorgan Claverhouse offers investors an attractive 4.6% yield, while ongoing charges are a reasonable 0.63%.
QUALITY & RESILIENCE
Following the departure of veteran manager Will Meadon in 2024, JPMorgan Claverhouse is now steered by Callum Abbot, who had been co-manager since 2018, alongside Anthony Lynch and Katen Patel.
New to JPMorgan Claverhouse they may be, but Lynch and Patel are both experienced members of JPMorgan’s UK asset management team and boast strong track records of investing across the UK market cap spectrum. Claverhouse’s investment approach is ‘a combination of value, quality and momentum’, Lynch informs Shares, ‘a common process that we have across all of our (JPMorgan Asset Management’s) UK strategies. We are looking for companies that are cheaper than the market, higher quality than the market and where things are getting better, they’ve got better momentum than the market.’
The focus is on selecting high-quality, resilient companies that can invest capital at high returns to drive strong and sustainable earnings growth, but the new managers have made slight tweaks to the investment approach, with more of an emphasis on dividend growth which is expected to result in lower turnover going forward.
The portfolio is broadly considered under three categories – high yielders, earnings compounders and high dividend growth companies. This has resulted in reduced exposure to higher-yielding sectors such as utilities and miners, and increased exposure to opportunities further down the market cap spectrum.
‘By bringing in that broader coverage of the UK equity market, we think we can do a pretty good job not just of looking for yield in the traditional areas, but actually find companies that have equivalent yields but better growth propositions, or perhaps are less capital intensive,’ adds Lynch.
He stresses Claverhouse is still very much an all-cap strategy with the bulk of the exposure in the FTSE 100 – top 10 holdings include NatWest (NWG), oil and gas multinational Shell (SHEL), pharmaceuticals giant AstraZeneca (AZN) and global bank HSBC (HSBA). Outside of the top 10, the managers topped up the position in Tesco (TSCO) following the recent market shakeout and the trust also offers exposure to blue-chip beverages behemoth Coca-Cola HBC (CCH).
‘But just at the margin we have tweaked it so that we are replacing some of those business that have less obvious long-term growth opportunities with slightly more exciting companies,’ explains Lynch.
DIVIDEND HERO
In order to maintain the dividend growth record for ‘another 52 years’, Lynch, Patel and Abbott want to invest in companies that ‘don’t just have high yields today, but also growing yields into the future. So we’ve introduced compounders, businesses where the growth is quite consistent and which are often quite capital light, and that feeds through to good free cash flow that can be returned to shareholders.’
Examples include XPS Pensions (XPS), the consulting and administration business that has grown the dividend at a 10% CAGR (compound annual growth rate) in recent years. Prospective investors are also buying exposure to the likes of promotional merchandise supplier 4imprint (FOUR), ‘a really high growth company’ whose shares are ‘incredibly good value’, according to Lynch.
The board seeks to increase the total dividend each year, at or close to the rate of inflation and for calendar year 2024, dividends totalled 35.4p, up 2.6% year-on-year, slightly higher than inflation and supported by the trust’s revenue reserves.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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