JPMorgan Claverhouse (CLH ) fund manager William Meadon has revealed why the £419m UK equity income investment trust he runs has fallen to a wider discount this year.

Claverhouse, a leading ‘dividend hero’ of the Association of Investment Companies (AIC) that has chalked up 50 years of rising shareholder payouts, has slipped into the ‘cheap’ list of our weekly Trust Watch in the past month. It yields an above-average 4.7% through its quarterly dividends.

At last night’s close it stood 5% below net asset value (NAV), which compared to the 1.3% average discount of the past year, gives it a ‘Z-score’ of -1.9. As regular Trust Watch readers know, that’s just outside the -2 score that is generally regarded as unusually low, or cheap.

It’s also wider than the 2.8% average discount of the 20 trusts in the AIC UK  Equity Income sector.

That’s quite a change for Claverhouse, a blue-chip focused closed-end fund that marks its 60th anniversary this year. Apart from the brief 2020 pandemic crash, its shares have traded at a small premium above NAV for much of the past five years.

Interestingly, the de-rating is not symptomatic of the flight from UK stocks, which saw nearly £1bn withdrawn from open-ended UK equity funds last month, although that can hardly help.

Meadon (pictured) told journalists at an AIC press event, that the discount was due to a ‘technical reason’ relating to the merger of JPMorgan Elect with JPMorgan Global Growth & Income (JGGI ).

Elect owned 4.5% of Claverhouse when the merger was announced in October. This position was quickly sold with the rest of Elect’s assets but had a lingering knock-on effect, by swamping the market with an unusual number of Claverhouse shares looking for a home that depressed the price.

This is the second anomaly caused by the merger. Last week we highlighted how top-performing JPMorgan Global Growth & Income could be bought cheaply through the C-shares issued as part of the merger. Due to a lack of trading, these traded at a discount in contrast to the trust’s ordinary shares which stood on a small premium.

Meadon said the sale of Claverhouse stock was ‘being digested by the market’ and had pushed its discount out further.

He argued this offered ‘value on top of a value opportunity’ given the UK stock market was already a bargain compared to the US and other global markets after years in a post-Brexit doldrum.

‘You want to invest in the UK now when the ratings are at a generation low,’ he said. ‘There has been a consistent derating over the past four to five years, and the UK is sitting at a 40% discount compared to the MSCI World index.’

Meadon pointed to the value available in individual stocks when compared with their global peers. Shell (SHEL) currently sits on a 43% discount to its US counterpart Exxon, which operates under Esso in the UK.

‘Is Shell really that much worse? They do the same thing: drill a hole, find the oil, get it out and sell it at market price,’ he said.

Similarly, the Johnnie Walker to Guinness drinks group Diageo (DGE) also trades at a 40% discount to US-listed Jack Daniels owner Brown-Foreman, while he said British American Tobacco (BATS) languished on 56% reduced valuation compared to US rival Philip Morris.

‘These are all global-facing companies so what you are doing when you buy UK is buying global on the cheap,’ said Meadon.

Fortunately, he said the value opportunities in the UK were ‘starting to be appreciated’, with the FTSE All-Share one of the few global share indices to log a gain last year.

‘People are asking whether that is a genuine turning point or just a blip up,’ said Meadon. ‘We argue that it is a turning point because value has more to run and if you want value, then the UK should be the top of your list.’

Claverhouse has net assets after debts of £441m on which it charges 0.55% up to £400m and 0.40% above that. It is currently geared 8% geared and under Meadon and co-Callum Abbot has delivered a total shareholder return of 105.4% in the past 10 years. That beats the All-Share’s 82.3% and ranks it sixth in its sector where the average trust return has been 95.6%.