Claverhouse beats FTSE as new team leans into dividend growth

JPMorgan Claverhouse (JCH ) outpaced the FTSE All-Share over the first half of this year, as its management team sharpened the portfolio’s focus on sustainable dividend growth.

Following the departure of manager William Meadon in June 2024 after a 12-year stint, the £440m UK equity trust has been run by Callum Abbot, Anthony Lynch and Katen Patel. Abbot had already co-managed the trust for six years.

While there has been no formal change to the investment policy, interim results to 30 June reveal a shift in emphasis, with turnover reduced and exposure to stocks which can grow their dividends increased. The team ‘have now put their stamp on the portfolio,’ said Ewan Lovett-Turner, chief investment company analyst at Deutsche Numis, which is also JCH’s corporate broker. 

The Claverhouse managers said the focus over the past six months has been on identifying companies where dividends are ‘not just secure but also have the potential to grow over time,’ adding that a high dividend yield is often ‘a sign of an undervalued business’.

JCH currently yields 4.5% and has raised its dividend for 52 consecutive years, with companies classed as ‘high yielding’ accounting for more than half of total assets.

NatWest (NWG) is one such holding and was increased in size over the period – the ‘overweight’ position is now the trust’s single single bet relative to the benchmark. The 5.7% yielding bank has benefited from high interest rates and efficiency gains which the team expects will drive profit growth at a faster rate than income growth over coming months.

‘This in turn is likely to result in strong dividend growth, which would lift the already high dividend yield,’ they said.  

The trust also holds 17% of its portfolio in what are classed as ‘high dividend growth companies’. The JPMorgan trio explained these stocks are long-term plays and ‘not usually the most significant contributors to portfolio income at the time they enter’.

Softcat (SCT), the UK’s largest IT value-added reseller, was a new addition in this category, having delivered double-digit profit growth every year since its 2015 IPO, raised its dividend at a 12% compound rate and paid an annual special dividend. Its current yield is 2.4%.

Elsewhere, another purchase made on hopes of dividend growth was Coca-Cola Hellenic Bottling Company (CCH).

The board welcomed this focus on dividend growth, given the dividend is not currently fully covered by income from the underlying portfolio. 

Deutsche Numis noted dividend cover was 0.85x during 2024. 

Banks lead the charge

Over the six-month period, the trust delivered a 13.5% total return on net assets, ahead of the FTSE All-Share’s 9.1%. The shareholder return was 14.6% as the discount narrowed to 4.9%.

Outperformance was driven by overweight positions in banks including NatWest and OSB (OSB), which benefited from higher-for-longer interest rates and a resilient UK economy. Rolls-Royce (RR) was another strong performer, supported by robust demand, margin improvements and stronger free cash flow.

The main detractor was promotional products group 4imprint (FOUR), which was hit by weak US small business confidence and tariffs on China-sourced goods. Despite this, the managers said they ‘remain confident about 4imprint’s longer term prospects’ citing its strong track-record of taking market-share.

Purchases over the period were funded by the sales of commodity giant Glencore (GLEN) and alternative asset manager Man Group (EMG).

At the end of June, the trust held 64 stocks, near the lower end of its 60–80 target range. Gearing stood at 6.9%, with a revolving credit facility due to be replaced by contracts for difference (CFDs) in September – these are potentially cheaper and the board with monitor their effectiveness. There is also £30m of long-term borrowing. 

JCH has outperformed the AIC UK Equity Income sector over one, three and five years. Over one, its 16% shareholder return beat the sector average of 14.3%.

In terms of the outlook, the managers see further opportunities in undervalued UK domestics.

‘With valuations of domestically exposed equities remaining low versus history, we are finding many interesting opportunities in businesses where we are confident that strong operating momentum will be more than sufficient to offset any broader adverse macroeconomic developments,’ they said.