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JPMorgan Claverhouse hit by discount widening

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JPMorgan Claverhouse has published its results for 2023. Its returns came in just behind those of the All-Share Index, returning 7.3% in NAV terms to the index’s 7.9%. A widening discount left shareholders with a return of 2.9%.

The dividend was increased (the 51st year in a row where this has happened!) to 34.5p from 33.0p. However, revenue per share fell from 34.3p to 30.7p and so part of that dividend is being paid out of reserves. After the payment of the fourth interim dividend for 2023, revenue reserves will represent 25.35p per share. The board is trying to grow the dividend ahead of inflation, this year’s 4.5% increase compares to an inflation rate of 3.4% (based on UK CPI) and will make that five years in a row where the target has been achieved. The first three quarterly dividends for the current year will be 8.25p (up from 8.0p).

Over 2023, the company repurchased 2,360,513 of its own shares, at a total cost of £15.7m. Since then, the discount has widened slightly and the board has continued to utilise targeted repurchases to cap the discount, buying in a total of 331,883 shares.

Extracts from the manager’s report

3i was again the star performer, rising 85% over the year. The shares of the housebuilders Taylor Wimpey and Barratt Developments each rose by more than 50% as the long awaited improvement in the housing market appeared to draw closer.

The utility service provider, Telecom Plus was a beneficiary, earlier in the year, of elevated energy prices, allowing it to offer their customers discounted prices to market rates. However, as energy prices receded, so did the customer acquisition growth of Telecom Plus, which was reflected in a share price fall of 30% over the period.

Shell again performed well as the ongoing conflict in Ukraine continued to expose the fragility of global energy markets. BP, by contrast, was shaken by a series of management missteps and scandals which led to the departure of its CEO. The shocking events in the Middle East added further to global conflict concerns. Against such a backdrop, the UK’s leading defence contractor, BAE Systems, benefitted from the expectation of further orders for its equipment.

Glencore is a diversified mining company with substantial exposure to metals which are essential for the electrification of vehicles e.g. copper, zinc and nickel. Its shares performed poorly as the economic data coming out of China pointed to continuing weak demand from the world’s largest commodity consumer.

Tobacco stocks (British American Tobacco and Imperial Brands) sold off on weaker North American cigarette volumes with investors still not attracted to historically very low valuations.

JPMorgan UK Small Cap Growth & Income plc (formerly JPMorgan UK Smaller Companies Investment Trust plc), run by JPMAM’s in-house small companies’ team, performed well. Over the years, this trust has not only contributed materially to the performance of Claverhouse, but as stocks have grown out of the smaller companies’ index and into the FTSE 350, it has also provided a rich source of many new ideas for us to invest in directly.

JCH : JPMorgan Claverhouse hit by discount widening

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