Claverhouse ready to ‘lean into the gathering storm’

The managers of JPMorgan Claverhouse say they stand ready to use the UK equity income investment trust’s maximum 20% gearing to take advantage of depressed stock valuations if market turbulence continues.

The managers of JPMorgan Claverhouse (JCH ) say they stand ready to use the investment trust’s maximum 20% gearing to take advantage of depressed stock valuations if market turbulence continues. 

William Meadon and Callum Abbot have already doubled borrowing, or gearing, in the UK equity income trust from a low 2% level at the mid-way point of the year to 4.9% at the end of last month. 

‘Without expecting to call the bottom of markets, our instinct is to start (very gradually) to increase the gearing of the portfolio from its current low level, selectively adding to opportunities when we see them. Markets may yet fall further, but with the significant gearing potential at our disposal, we are steeling ourselves to lean – gently – into the gathering storm,’ Meadon (pictured below) and Abbot said, in the trust’s interim results last week. 

Gearing both enhances returns in rising markets and losses when the value of holdings fall, as has been more the dynamic this year. 

In recent months, the managers have been adding to energy names, which the £460m portfolio is overweight versus the FTSE All-Share, as well as financials and utilities, to create an income portfolio of high-yielding defensive names. Top ten positions include AstraZeneca (AZN)Rio Tinto (RIO) and British American Tobacco (BATS).

This year’s raised dividend is evidence of the manager’s inflation-protecting strategy, marking 49 consecutive years of higher payouts to investors. In March, the board outlined plans to raise the first three quarterly dividends of 2022 from 7p to 7.5p per share, a 7.1% increase, then in line with the Bank of England’s forecast for spiking consumer prices


After Russia invaded Ukraine, the managers were forced to rejig the 4.7%-yielding portfolio, which was positioned for a post-Covid economic recovery. Over the period, they decreased weightings in consumer stocks and bought into defensive positions.

They added to energy names, Drax (DRX), SSE (SSE) and Serica Energy (SQZ), as well as BP (BP) and Shell (SHEL), which are now two of the largest holdings in the portfolio with a combined weighting of 13.5%.

They also bought mining company Glencore (GLEN), now a top 10 position, because its exposure to metals required in the manufacturing of batteries, including copper, nickel and zinc, puts it in a good position to benefit from the energy transition.

To protect the portfolio against rising levels of inflation the pair added several utility names: National Grid (NG), Severn Trent (SVT) and United Utilities (UU).

They added two companies based on strong pricing power: Bunzl (BNZL), a distributor of non-food consumable products, and Hilton Food Group (HFG), a meat and fish packer and distributor.

They added to existing financial companies where the shares had fallen sharply, 3i (III ) and Intermediate Capital Group (ICP). They also opened positions in three housebuilders, Redrow (RDW), Crest Nicholson (CRST) and Berkeley Group (BKG), all of which ‘now look very good value with extremely attractive yields.’

‘Equities have priced in a lot of bad news and for long-term investors such as ourselves, there are an increasing number of really strong, sound companies now trading on attractive valuations,’ said the managers. 

Year to date, the portfolio has fared badly against its benchmark, falling 5.9% on the basis of underlying net asset value (NAV), compared to the FTSE All-Share’s 0.8% gain. The shares have fallen 6.9% and currently trade at a small 0.9% discount to NAV, according to broker Numis.

Over three years, the shares’ 15.9% return is just ahead of 15.4% for the benchmark. However, over the ten years since Meadon was appointed, a 149% rise is about 55% ahead of the index. 

The pair have sold out of many positions as they effectively rebuilt the portfolio, such as cyclical and industrial stocks at the beginning of the invasion.

Sales included tech group Aveva (AVV), materials company Breedon (BREE), coach operator National Express (NEX), chemicals company Synthomer (SYNT), student accommodation company Unite Group (UTG) and airline Wizz Air (WIZZ).

The pair also grew wary of asset managers’ downside risk and sold out of Impax (IPX), Liontrust (LIO) and Polar Capital (POLR), as well as taking ‘substantial profits’ on the sale of Scottish Mortgage (SMT ).

They also reduced their exposure to the retail sector, selling B&M (BME), Burberry (BRBY), Marks & Spencer (MKS) and JD Sports (JD), as well as cyclical media names Future (FUTR) and WPP (WPP).

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