JPMorgan Claverhouse results for the year ended 31st December 2018 show that its net asset total return for the year to 31st December 2018 was -13.5%. This compares with a total return for the same period from its benchmark index of -9.5%, an underperformance of 4.0%. The discount narrowed over the period, from a discount of 5.4% to a premium of 3.3%. As a result the total return to shareholders showed an outperformance compared to the benchmark index of 4.0%. The total dividend per share for the year was 27.5p (2017 total: 26.0p). This represents the 46th successive year in which the dividend has been raised and is an increase of 5.8% over the previous year.
[QD comment: It is possible that investors are favouring the trust because of its strong dividend track record and are prepared to forgive short-term capital underpeformance.]
Extract from the manager’s report
“Our most positive contributor to performance during 2018 was our underweight position in British American Tobacco (BAT). BAT generates just over 40% of its profit in the US and roughly half this comes from menthol cigarettes. In 2018, the US’s Food & Drug Agency targeted tobacco and particularly menthol cigarettes, with a view to banning menthol cigarettes completely.This has come at a time when next generation products have vastly increased in popularity and new entrants have surged into this market leaving incumbent tobacco companies, like BAT, looking flat-footed. Against this challenging backdrop, concerns over the company’s growth expectations, together with the extensive debt it is carrying, saw the share price halve during the year.
Fever-Tree was again a positive contributor to the portfolio. The company’s profits continued to beat market expectations, with growth in the UK and Europe continuing apace while the opportunity to expand their range into the much larger US market showed early signs of promise. As the share price has risen we have taken profits along the way, so when the shares fell sharply in the fourth quarter market sell-off, our position was not outsized.
The biggest detractor from performance during 2018 was our position in Jupiter Fund Management. Poor performance in their Dynamic Bond Fund and Merlin fund of funds product led to outflows, which was compounded by weak markets, leading to falling revenues. Costs also rose due to the increased regulatory burden on asset managers post MiFID II.
Thomas Cook, the package holiday company, was another detractor. The hot British summer and World Cup kept customers at home while management made frequent errors in their communications with the market that led to a loss of credibility. We sold out of the stock before its capitulation in September but the share price had fallen materially already.”
JCH : Claverhouse on premium despite underperformance