JPMorgan Claverhouse, a UK equity income trust run by William Meadon and Callum Abbot, has given Nick Train's Finsbury Growth & Income a run for its money over the past year.
JPMorgan Claverhouse (JCH), managed by William Meadon and Callum Abbot, has overtaken Nick Train’s Finsbury Growth & Income (FGT ) as the top-performing investment trust in the UK equity income sector over the past year.
It marks a change for the £427 million portfolio, which is typically seen as a ‘steady eddie’ fund for dividend growth but one that doesn’t shoot the lights out.
Claverhouse’s share price has risen by 16.5% over the 12 months to 9 August, outpacing Finsbury Growth & Income which was up 14.9%. This was three times higher than the average fund in the Association of Investment Companies’ UK equity income sector, which rose by 4.6%.
This share price performance has not gone unnoticed: over the past 12 months, Claverhouse’s discount to net asset value (NAV) narrowed from 9.2% to 3%. This represents a big improvement from October 2016 when the discount reached 12%.
The narrowing of the discount prompted the board to issue 495,000 shares from treasury at an average discount of 1.3% over the six months to the end of June, representing a reversal in policy. However, the board said it is prepared to buy back shares if the discount falls to 5% plus in the future.
Over the past 12 months, Claverhouse’s NAV has grown by 7.6%, lagging share price performance. The fund also trails Finsbury Growth & Income, which has returned 14.4%, and Merchants (MRCH) up 8.9% over the same period.
This suggests that investors have potentially been tempted into Claverhouse on account of its discount, 3.4% dividend yield or strong track record of dividend growth for 45 successive years.
Over the six months to the end of June, Claverhouse’s NAV grew by 2.9%, which compares to 1.7% by the FTSE All Share benchmark.
Meadon and Abbot highlighted premium mixer drinks company Fever-Tree (FEVR) as the top performer in the trust's half-year report, following a 49% share price rise over the six-month period. The fund managers described the company as ‘remarkable’, given it has only 60 people and commands a market capitalisation of £4 billion.
‘Global demand for its suite of mixers continues to significantly beat expectations and the vast US drinks market means there is plenty of potential growth,’ the managers noted.
The team top-sliced the position once again for risk control reasons, but it remains the biggest overweight position in the portfolio.
However, it wasn’t all plain sailing for Claverhouse. Detractors over the period included Jupiter Fund Management (JUP), which struggled with fund outflows. Meanwhile, Thomas Cook (TCG) downgraded its earnings after many consumers chose to take advantage of the uncharacteristically hot summer and holiday in the UK.
Over the period, the managers sold out of cruise operator Carnival (CCL), car dealership Inchcape (INCH), and payroll software group Sage (SGE). Trading across these businesses had been challenging - and the team saw potential for further deterioration.
Dialling down risk
The team slashed the fund’s exposure to cyclicals, including financials, which enabled them to reduce borrowing in the portfolio over the six months. This formed part of broader drive to dial down risk in the portfolio as the risks associated with global trade tensions and a Brexit ‘no deal’ mount.
Borrowing or gearing in the portfolio fell from 11.3% at the start of the year to around 9% in early August.
A Brexit ‘no deal’ would pose a substantial risk to UK stocks. The managers point out that eight months away from the deadline Prime minister Theresa May’s white paper, which forms the basis of negotiations, has thrown the Conservative party into turmoil.
‘The actual details are still far from decided and in fact it still remains to be seen if the European Union believe this white paper is a viable starting point to begin negotiations. As throughout the Brexit process uncertainty remains,’ the managers noted.
They added that the trade war, primarily between the US and China, represents another significant concern.
‘This threatens to destabilise global economic growth and could lead to investors becoming more risk adverse. However, there is still time for tensions to be defused,’ they concluded.
Over the past five years, Claverhouse’s share price has risen by 63.7%, which compares to 45.2% by the sector average. Over this period, Chelverton UK dividend leads the way with an 89.7% share price return, followed by Finsbury Growth & Income with 87.2% and Diverse Income with 73.9%.