This fund has suf­fered dur­ing the pan­demic but the div­i­dend looks se­cure

JP Mor­gan Claver­house has enough in its re­serves to in­crease this year’s pay­ment de­spite the dam­age done by Covid-19

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AN IN­VEST­MENT trust that we added to our In­come Port­fo­lio in April pub­lished its first in­terim re­port since our pur­chase last week. Nat­u­rally we were in­ter­ested to see what the fund, JP Mor­gan Claver­house, had to say about the div­i­dend and how its hold­ings had per­formed dur­ing lock­down.

On the divi there was good news. The board de­clared a sec­ond in­terim pay­ment of 6.5p a share for the six months to June 30, in line with its pol­icy to make the first three di­vis of the year equal. It will be paid on Sept 1.

We can also ex­pect an in­crease in the full-year pay­ment. The board said: “The pol­icy re­mains to seek to in­crease the to­tal div­i­dend each year and, tak­ing a run of years to­gether, to in­crease div­i­dends at a rate close to or above the rate of in­fla­tion. The com­pany con­tin­ues to ben­e­fit from

a rel­a­tively high level of rev­enue re­serves, which have been built up over a num­ber of years, and the abil­ity to utilise these, if nec­es­sary, to sup­port the div­i­dend.

“Given the cut­ting or sus­pen­sion of div­i­dends by many com­pa­nies since the be­gin­ning of the year, it is likely that the full div­i­dend for 2020 will re­quire some util­i­sa­tion of the rev­enue re­serves. The board cur­rently in­tends to de­clare an in­creased div­i­dend for 2020, com­pared with that for 2019.”

It added that it was “dif­fi­cult to know” whether the pay­ment of lower div­i­dends, or none at all, by many listed com­pa­nies, in­clud­ing some in its port­fo­lio, would con­tinue in 2021 and be­yond. It said the board and the fund’s man­agers would “care­fully mon­i­tor this” and how re­serves may be af­fected.

In a re­flec­tion of the fall in div­i­dend pay­ments by listed firms, Claver­house’s in­come per share de­clined by about 38pc to 10.19p from 16.45p in the same pe­riod last year. As the two 6.5p di­vis in the first half come to 13p, we can see that the div­i­dend was not cov­ered by earn­ings, hence the use of the re­serves. The fund’s man­agers, Wil­liam Meadon and Cal­lum Ab­bot, said: “At the start of the pe­riod your port­fo­lio was po­si­tioned for an eco­nomic up­turn fol­low­ing the clear­ing of the po­lit­i­cal skies both do­mes­ti­cally and also in re­la­tion to the UK’s re­la­tion­ship with the EU. The port­fo­lio was cycli­cally bi­ased and had gear­ing [bor­row­ing] by mid-Jan­uary of some 14pc.” The man­agers said the port­fo­lio was there­fore “wrong-footed” by the coro­n­avirus out­break.

“The rapid sell-off in mar­kets in the first quar­ter was costly for the fund both in terms of be­ing geared and also for many of the cycli­cal stocks we held. As the mar­ket started to price in an im­mi­nent re­ces­sion, our hold­ings in con­sumer-fac­ing stocks such as Rank, Tay­lor Wim­pey and JD Sports per­formed poorly.”

But by the end of the first quar­ter they said they had taken “swift ac­tion” to re­duce gear­ing to very low lev­els and to re­struc­ture the port­fo­lio to­wards more re­silient com­pa­nies in­clud­ing phar­ma­ceu­ti­cals and “cap­i­tal-light” tech­nol­ogy firms.

“We also in­creased our hold­ings in some of the more de­fen­sive sec­tors such as util­i­ties,” they said. Gear­ing also rose as mar­kets re­cov­ered. “How­ever, al­though our stock se­lec­tion was good in the sec­ond quar­ter, it did not make up for the un­der­per­for­mance of the first quar­ter,” the man­agers ad­mit­ted. As a re­sult, the trust’s net as­sets fell by 22.3pc while its bench­mark in­dex lost 17.5pc over the six months.

How­ever, we be­lieve they re­acted ra­tio­nally to a sud­den and cat­a­strophic turn of events. Hold.

Up­date: Re­gional Reit

Late last month we re­ported this prop­erty trust’s strong rental col­lec­tion dur­ing lock­down and last week it said a val­u­a­tion of its port­fo­lio at the end of June had marked down the to­tal by just 4.3pc af­ter sales and pur­chases were taken into ac­count.

The head of the man­age­ment com­pany said he was “in­creas­ingly con­fi­dent” the trust’s per­for­mance dur­ing the pan­demic would see the port­fo­lio’s val­u­a­tion “re­warded in the long term as we re­turn to a more nor­mal en­vi­ron­ment”. Hold.

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