The chairman of JPMorgan Claverhouse says its performance in the first half of the year has been disappointing after several years of very good returns. The net asset value total return of -2.0% for the six months to 30th June 2016, compared with the return from the benchmark, the FTSE All-Share Index, of +4.3% over the same period. He says this reflected a mid-cap bias in the portfolio. As a result of the referendum vote, UK domestically focused companies were de-rated in favour of the larger FTSE100 companies, which have more international exposure and revenues. The return to shareholders for the six month period was -6.8% as the share price declined 8.7% over the first half of the year, reflecting a widening of the discount over the period.
A first quarterly dividend of 5.0p per share was paid on 1st June 2016. It continues to be the Board’s intention that the first three quarterly dividends should be of an equal amount and the Board has declared a second quarterly interim dividend of 5.0p (2015: 5.0p). It remains the Board’s aim to increase the total dividend each year as it has done in each of the past 43 years. The statement points out that, in contrast to the company’s open ended peer group, as well as many other investment trusts, JPMorgan Claverhouse continues to benefit from a relatively high level of revenue reserves and the ability to utilise these to support the dividend, as it has done in the past, should it be necessary.
Over the period the FTSE100 large-cap index returned +6.6%, in contrast to the much more domestically focused FTSE Mid 250 and FTSE Small Cap indices, which returned -5.2% and -2.0% respectively. The managers say the portfolio suffered from its bias to domestically-focused mid cap stocks which performed poorly in both the run up to and the aftermath of the unexpected EU referendum result at the end of June.
In anticipation of the volatility that might follow the EU vote, they significantly reduced the portfolio’s exposure to mid cap stocks during the month of June through sales of Go-Ahead, Greggs, Laird and St Modwen. They admit however that, in retrospect, had they correctly anticipated the result of the referendum, they should have sold more. The Brexit vote was a major surprise and investors’ immediate fears were that the UK would soon go into recession. The share prices of many domestically oriented companies dropped vertiginously on these concerns.
Housebuilders’ shares were particularly badly hit with some of them falling by as much as 40%. Holdings in Barratt Developments, Berkeley Group and Taylor Wimpey were no exception. Although they had significantly reduced exposure to the sector during the period, the share price falls were so severe that even the remaining modest exposure proved costly to the portfolio. Holdings in British Land and Land Securities also suffered after the referendum result, as investors anticipated a sharp slowdown in commercial property developments. The closing of some property funds to investors, prohibiting them from redeeming their investments, did not help sentiment in the sector.
The broadcaster and media company ITV gave up much of its previous gains as concerns focused on the effect a UK recession might have on advertising revenues. The high street retailer Dixons Carphone also fell sharply on concerns that consumer spending would fall sharply in a post Brexit world.
On the plus side, tobacco stocks, British American Tobacco and Imperial Brands both performed very well in the period, rising more than 30% and 15% respectively. A holding in the premium mixer and soft drinks retailer Fever-Tree also continued to exceed expectations in its delivery of profits, which was reflected in its share price rising another 20% in the period. The portfolio also benefited from increasing its holdings in the mining sector through purchases of Rio Tinto, Glencore and BHP Billiton. Their relatively low exposure to the poorly performing banking sector was also beneficial.
JCH : JPMorgan Claverhouse laments Brexit impact on portfolio