JPMorgan Income & Capital reports its net assets fell during the year ended 29th February 2016, reflecting a general market decline. The total return on the Company’s assets for the year ended 29th February 2016 was a negative 5.5%. This represented an over-performance of 1.4% against the composite benchmark (comprising 90% FTSE 350 Index, excluding investment trusts, and 10% Barclays Global Aggregate Corporate Bond Index in sterling terms) which recorded a total negative return of 6.9% for the same period.
A fourth interim dividend of 1.80p and a special dividend of 0.25p per Ordinary share were paid on 22nd April 2016 to Ordinary shareholders and Unit holders on the register at the close of business on 8th April 2016. In summary, the dividends paid or to be paid in respect of the year ended 29th February 2016, amounting in total to 7.40p per Ordinary share, comprise of three interim dividends each of 1.70p per Ordinary share, a fourth interim dividend of 1.80p per Ordinary share and two special dividends of 0.25p per Ordinary share. This represents an increase of 12.5% over the total dividend of 6.575p per Ordinary share paid in respect of the previous year. The Board anticipates that, in the absence of unforeseen circumstances, the Company will be in a position to maintain the level of quarterly dividend, during the current financial year ending 28th February 2017, at 1.80p per Ordinary share (making a total, before any special dividends, of 7.20p per Ordinary share).
The manager’s report says the outperformance of the portfolio was due to equity stock selection whilst being underweight in corporate bonds detracted from returns relative to the Company’s composite benchmark. The best performing stock over the financial year was Beazley which is a specialist insurance company which manages six Lloyds’ syndicates. Profitability has been running ahead of expectations due to strong underwriting returns. The growth outlook is positive as the company has an attractive position in cyber security insurance. Additionally, the company has materially increased its 2016 dividend giving a yield at the time of writing of 7%. Imperial Brands (previously known as Imperial Tobacco) also contributed meaningfully to returns. The earnings prospects for the company have improved following the acquisition of various US brands. The cash return potential of the company is also very attractive. The long term holding in WH Smith was also beneficial as growth in its stores in airports and train stations offset slower growth on the High Street. The company also benefited from the new, if unusual interest in adult colouring books. KCOM, which provides telecom services in Kingston (Yorkshire), boosted portfolio returns as the market welcomed the sale of its fibre optic cable network and rewarded strong results and a healthy dividend.
When looking at relative returns what is not owned can be as important as what is owned. They say, frustratingly, they did not own either SABMiller or BG Group, both of which were recipients of takeover approaches. This cost us 1.07% of relative performance alone. Slowing industrial momentum in the US led to very weak performances from engineering group GKN and equipment rental company Ashtead. Both of these companies have significant exposure to US industrial markets. The holding in iron ore producer Rio Tinto was also unhelpful as commodity prices weakened impacting earnings and leading to fears that the dividend was unsustainable.