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Claverhouse swerves Burford Capital crash as divi stays on track

13 August 2019

UK equity income trust dodges Burford Capital crash but warns of weak dividend trends in UK stock market.

UK equity income trust JPMorgan Claverhouse (JCH) has swerved the crash in Burford Capital (BURF) shares following a short-selling attack by US hedge fund Muddy Waters.

Claverhouse duo William Meadon and Callum Abbot sold the trust’s holding in the litigation financier, last noted as a 1% position, in the first half of the year.

Shares in Burford Capital, which counts embattled fund manager Neil Woodford and Invesco’s Mark Barnett as its biggest backers, are down 40% over the last week.

City regulator the Financial Conduct Authority (FCA), is now looking into claims by Burford that its stock was hit by ‘illegal market manipulation’.

Meadon and Abbot managed to get out before the sell-off, citing concerns over the ‘sustainability of the company’s high returns on capital’ as the litigation finance sector grew crowded.

The £388 million trust beat its benchmark in the first half of the year, with the net asset value (NAV) up 17% versus a 13% rise from the FTSE All-Share. But the trust's shares lagged the index, rising just 10% as the discount to NAV widened to 4.3%.

JD Sports boost

Sportswear retailer JD Sports (JD), a 1.4% position, was the biggest contributor. ‘Strong brand relationships continue to drive rapid growth in their existing shops and facilitate expansion into Europe and the US’, said Meadon and Abbot. The shares rose 68% in the first half, adding 0.5% to the trust’s performance.  

IT services firm Softcat (SCT), a 1.1% position, was another positive performer, benefiting from digitalisation trends, while the trust's exposure to miner Rio Tinto (RIO) was boosted by strong iron ore prices.

New additions to the portfolio included miniature war games maker Games Workshop (GAW), a 1.1% holding, along with a 0.8% position in financial markets business London Stock Exchange Group (LSE).

In addition to Burford, the managers also sold the last of the trust’s positions in telecoms stocks BT (BT) and Vodafone (VOD).

Weak dividend environment

A weaker environment for dividends in the first six months of the year resulted in a 5% drop in earnings per share, down to 16.45p compared to 17.30p for the same period in 2018.

But Claverhouse is still set to deliver its 47th consective year of dividend growth, the seventh longest stretch among all investment trusts. Quarterly payouts are up to 6.25p this year from 6p in 2018, supported by the trust's high level of revenue reserves

Claverhouse has a historic yield of 4.1% and the third best five-year dividend growth in the UK equity income sector, at 7.2%, according to data from the Association of Investment Companies.

The managers warned of continued slowing dividend growth, citing dividend cuts made by a number of blue-chip companies such as Vodafone, high street stalwart Marks & Spencer (MKS) and British Gas owner Centrica (CNA).

Investment company news brought to you by Citywire Financial Publishers Limited.

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