JPMorgan Claverhouse (JCH) announced results for the year ended 31 December 2022. The Company underperformed its benchmark, the FTSE All Share Index, declining by 4.6% on a NAV basis, and 5.1% in share price terms over the period, compared to a positive return of 0.3% for the benchmark. While management acknowledged the disappointing result, they highlighted that the underperformance occurred in the first half of the year, during the worst of the financial turmoil. Portfolio performance improved in the second half of the year and the company outperformed its benchmark in this six-month period, recouping some of its underperformance, as market conditions steadied. They also pointed out that the year was characterised by a small percentage of stocks outperforming the relevant index. For example, only 23% of stocks outperformed the FTSE All Share Index over the year which made it particularly challenging for active managers operating for risk management reasons within agreed investment guidelines and restrictions.
Looking ahead, the portfolio managers commented:
“We continue to observe a fragile world characterised by heightened risks. Global growth will be slower in 2023 and some economies, including the UK, may slip into recession. The end of the decade-long era of cheap money will require investors to factor in structurally higher inflation and interest rates than those they have enjoyed for so long. In addition, the UK economy faces several unique challenges (some of them self-inflicted!).
“However, despite these negatives, a likely peaking of both inflation and interest rates this year, combined with the long-awaited re-opening of China, and the sheer depth of universal investor pessimism, makes us more optimistic on markets than we have been for some time. We are particularly attracted to large, blue chip FTSE 100 stocks, many of which are genuinely global in their operations, but whose shares continue to trade on significant discounts to their international peers. Indeed, the attractive valuations of many UK stocks could see the UK market continuing to be one of the better performing global markets over the coming year and beyond.
“In a lower growth environment, dividend income is likely to comprise a higher proportion of future total returns. Consequently, stocks offering high, predictable income should be re-rated – as, hopefully, will high income Investment Trusts like Claverhouse, which have a long track record of dividend growth. This trend is likely to be supported by investors’ increased need for income given the current cost of living crisis.
“The dangerous ‘get rich quick’ era of recent years, which placed crypto currencies, Nasdaq stocks and profitless technology names in the ascendancy, is well and truly over. In this new, more challenged world, investors will need to extend their time horizons and re-learn to appreciate traditional investment virtues such as slow, steady compounding and the certainty of access to their money.
“Further tough economic times no doubt lie ahead. But the arrival of a new, more cautious era should play to Claverhouse’s strengths – its long-term prudent approach of investing in good value, dividend-paying, quality UK companies – and we are confident that shareholders will be rewarded for their patience.”
JCH : A slow and steady recovery for JPMorgan Claverhouse after tough start