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- Annual results from JPMorgan Claverhouse as stock and sector selection drive outperformance
We have annual results (to end-December 2019) from the UK equity income company, JPMorgan Claverhouse (JCH). The company said that as at 16th March 2020 the FTSE All-Share Index had fallen to 2848.87; a fall of over 30% and its lowest level in almost eight years.
Chairman, Andrew Sutch, noted: “Although we report in this document on the 2019 financial year, it is clear that 2020 will be different and very challenging for the global economy and markets and thus for the company. Meanwhile, I can report a strong performance for the year to 31st December 2019, the company’s net asset total return being +25.3%. This compares with a total return for the same period from the company’s benchmark, the FTSE all-share index, of +19.1%, an excellent outperformance of +6.2%.”
JCH delivered stock and sector selection of +6.4% against the benchmark.
William Meadon and Callum Abbot, managers of JCH, noted: “The JPMorgan Smaller Companies Investment Trust, managed by our in-house small companies team, performed extremely well over the period, returning 68% in share price terms. Over the years, this fund 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. Games Workshop and Dunelm are just two recent, very rewarding, examples of this process. JPMorgan Smaller Companies performed particularly well after the General Election as a combination of strong stock selection and a closing of the discount combined to give exceptional share price returns.
Our overweight position in Softcat, the IT reseller, materially contributed to returns. The company’s share price nearly doubled over the course of the year. The company has continued to gain share in a growing market and its strategy of selling deeper to existing customers has reaped benefits. We still believe there is significantly more to go for as companies in the UK continue to prioritise technology investment and Softcat is well placed to capture a greater share of this growing markets.
Intermediate Capital Group is an alternative asset manager that specialises in various types of niche credit and equity financing through private equity style funds. Fund performance has been consistently strong across their range, generating substantial performance fees and leading to considerable demand for new funds, which are charged at premium fees.
In 2019, homebuilders performed strongly, as the primary housing market remained robust and investors became more comfortable with the macro and political environment. Barratt Developments was the best performer. The management team set an ambitious margin target at the start of the year and has executed its strategy successfully throughout 2019. We think the company will continue to drive margins higher towards their target and the improved outlook for the UK economy should provide a further tailwind.”
Investment Trust | +2.01% | Micro Focus | (0.72%) | ||
JD Sports | +1.24% | Evraz | (0.55%) | ||
Softcat | +0.70% | Imperial Brands | (0.51%) | ||
Intermediate Capital Group | +0.69% | International Consolidated Airlines | (0.38%) | ||
Barratt Developments | +0.60% | Royal Dutch Shell | (0.35%) |
William Meadon and Callum Abbot, went on to add.
The managers noted: “The decisive result of the recent general election has removed much of the political uncertainty that has hung for over both the UK economy and stock market in recent years. Whilst the precise timeline for delivering a complete Brexit (including attendant trade deals) will remain unclear for some while yet, we nevertheless expect the clearing of the political skies soon to improve the confidence of consumers, corporates and investors alike.
With such a substantial majority in the Commons, the Government can enact policy at will and it would not surprise us if much of it was radical in nature and rewarding for UK shareholders. Such policies should also attract overseas investors back to the UK economy and stock market. What is more, despite a strong performance in 2019, UK equities still look very good value, trading at a 35% discount to the MSCI world index – a near 30 year record. Moreover, the prospective yield on the FTSE all-share looks particularly appealing relative to both other equity markets and also the pitifully low yield on bonds and cash deposits.
The global economy remains in reasonable shape and should be supported further by the recent signing of the first stage of the US/China trade deal. The US economy may slow a little in 2020 but it is unlikely to go into recession. This together with continuing low interest rates keeps us optimistic on the prospects for markets in the medium term.
However, an improving economic and political backdrop has been completely overshadowed since the year end by the rapid spread of coronavirus from its origins in China. This virulent virus, which is moving at pace across the globe, is understandably causing concern amongst both investors and general public alike. Against a backdrop of considerable uncertainty as to how potentially dangerous the virus is and how far it will spread, equity markets globally have fallen sharply. Sentiment is likely to remain risk averse until such fears dissipate, which may be some while. As a consequence, we have tactically reduced the gearing in the portfolio to lower levels than usual, but we will be looking to increase it when appropriate.
Meanwhile, as markets oscillate, JCH’s shareholders can continue to take considerable comfort from being invested in a company with fortress revenue reserves which provide them with one of the most secure dividends in the UK stock market.
The fund currently has no gearing.”
JCH: Annual results from JPMorgan Claverhouse as stock and sector selection drive outperformance
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