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JPMorgan Claverhouse Investment Trust. AGM Presentation. William Meadon – new co-fund manager. Head of UK equities 25 years industry experience Qualified chartered accountant New co- fund manager Specific responsibility for gearing. … focused on improving performance. - PowerPoint PPT Presentation
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JPMorgan Claverhouse Investment Trust
AGM Presentation
JPM Claverhouse AGM April 2012
2
William Meadon – new co-fund manager
… focused on improving performance
Head of UK equities
25 years industry experience
Qualified chartered accountant
New co- fund manager
Specific responsibility for gearing
JPM Claverhouse AGM April 2012
3
JPM Claverhouse Investment Trust highlights
Objective– Capital and income growth from UK investments
Launched in 1963, named after Viscount Claverhouse
Claverhouse portfolio value of c.£300m
Current gearing c.13%
Dividend increased for 39 consecutive years (+4.3% from 17.50p to 18.25p in 2011)
Claverhouse shares currently yield 4.4%, dividends paid quarterly
JPM Claverhouse AGM April 2012
4
Agenda
New strategy for Claverhouse
Performance review of 2011
Current portfolio positioning
Market outlook
JPM Claverhouse AGM April 2012
5
Claverhouse... a new approach
■ A more focused portfolio (60 – 80 stocks)
- more conviction
■ More fundamentally driven stock picking
■ Value and momentum
■ Tactical use of gearing
- £30m debenture = 11% gearing
- £15m loan facility to give +/- 5% tactical gearing
…a structurally geared, focused UK Investment Trust
JPM Claverhouse AGM April 2012
6
Agenda
New strategy for Claverhouse
Performance review of 2011
Current portfolio positioning
Market outlook
JPM Claverhouse AGM April 2012
7
Performance in 2011
Total return performance%
Source: Datastream/JPMAM. Series have been rebased to 100 at 31 December 2010. Data to 31 December 2011. NAV returns are net of fees.
80
85
90
95
100
105
110 JPMorgan Claverhouse NAV JPMorgan Claverhouse Share PriceFTSE All Share
NAV Total Return: -7.6%
Share Price Total Return: -7.9%
FTSE All Share Total Return: -3.5%
Dividend increased from 17.5p to 18.25p
... 2011 – a more challenging year, negative absolute and relative returns
JPM Claverhouse AGM April 2012
8
Performance in 2011 – attributionAnalysis of relative return
2011 a challenging year for active managers – the Claverhouse portfolio underperformed the volatile market, struggling in the second half.
Gearing into the volatile and declining market detracted from performance, in contrast to 2010.
Underlying equity portfolio has outperformed by 0.4% p.a. over 10 years.Source: JPM Claverhouse Annual Report, 2009
(%)
Net asset value total return: -7.6
Benchmark total return: -3.5
Relative return -4.1
(%)
Benchmark total return -3.5
Stock selection -0.6
Asset allocation -1.3
Gearing/cash -1.2
Total Investment Manager contribution -3.1
Portfolio total return -6.6
Management fees/other expenses -0.7
Use of prior year reserve -0.4
Share repurchases 0.1
Total other effects -1.0
NAV return -7.6
... underperformance in 2011, disappointing after strong performance in 2010
Source: JPMAM JPMorgan Claverhouse Annual Report.
JPM Claverhouse AGM April 2012
9
12 month performance to 31 December 2011 – attribution
Top 5 / bottom 5 sector positions
-0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8%
Media
Tobacco
Support Services
Beverages
Electronic & Electrical Equip.
Mobile Telecoms
Mining
General Retailers
Banks
Oil & Gas Producers
Major stock and sector contributors to returns
Source: JPMAM, Factset.
Top 5 / bottom 5 stock positions
-0.6%-0.4%-0.2% 0.0% 0.2% 0.4% 0.6%
British American Tobacco (uw)
National Grid (uw)
Ferrexpo
Diageo (uw)
Rio Tinto
Astrazeneca
Next
Standard Chartered (uw)
Lloyds Banking (uw)
Royal Dutch Shell
JPM Claverhouse AGM April 2012
10
Performance – Q1 2012 update
3 months to 31 March 2012, total return performance%
... an encouraging start to 2012 with positive absolute and relative returns
92
94
96
98
100
102
104
106
108
110
112
Dec-11 Jan-12 Feb-12 Mar-12
JPMorgan Claverhouse NAV +7.2%
JPMorgan Claverhouse Share Price +4.3%
FTSE All Share +6.1%
Source: Datastream/JPMAM. Series have been rebased to 100 at 31 December 2011. NAV returns are net of fees. Figures in the legend are sourced from JPMAM (provisional returns).
JPM Claverhouse AGM April 2012
11
Agenda
New strategy for Claverhouse
Performance review of 2011
Current portfolio positioning
Market outlook
JPM Claverhouse AGM April 2012
Claverhouse Portfolio
Conviction stock ideas, with between 60-80 direct stock holdings
We have reduced the tail of smaller stock positions, and now have more stock positions above 50bps
Continue to look for value and momentum stock ideas, using dividend yield as an additional valuation tool
Fundamental stock selection, hand-constructed portfolio
Claverhouse portfolio will typically have a premium dividend yield – currently c.1% dividend yield premium, at 4.1%
12
... early implementation of new strategy for Claverhouse
JPM Claverhouse AGM April 2012
Changes since introduction of the new strategy
Recent Purchases
ITV
WPP
Rexam
→ Favoured stocks
13
Recent Disposals
Tesco
SABMiller
Rank
→ No longer compelling
Greater conviction stock ideas
... currently 74 direct stock holdings
JPM Claverhouse AGM April 2012
14
Stock example: ITV Plc
Dec-08Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jul-10Jul-10Jul-10Jul-10Jul-10Jul-10Jul-10Jul-10Jul-10Jul-10Jul-10Aug-10Aug-10Aug-10Aug-10Aug-10Aug-10Aug-10Aug-10Aug-10Aug-10Aug-10Sep-10Sep-10Sep-10Sep-10Sep-10Sep-10Sep-10Sep-10Sep-10Sep-10Sep-10Oct-10Oct-10Oct-10Oct-10Oct-10Oct-10Oct-10Oct-10Oct-10Oct-10Nov-10Nov-10Nov-10Nov-10Nov-10Nov-10Nov-10Nov-10Nov-10Nov-10Nov-10Dec-10Dec-10Dec-10Dec-10Dec-10Dec-10Dec-10Dec-10Dec-10Dec-10Dec-10Dec-10Jan-11Jan-11Jan-11Jan-11Jan-11Jan-11Jan-11Jan-11Jan-11Jan-11Feb-11Feb-11Feb-11Feb-11Feb-11Feb-11Feb-11Feb-11Feb-11Feb-11Mar-11Mar-11Mar-11Mar-11Mar-11Mar-11Mar-11Mar-11Mar-11Mar-11Mar-11Mar-11Apr-11Apr-11Apr-11Apr-11Apr-11Apr-11Apr-11Apr-11Apr-11Apr-11May-11May-11May-11May-11May-11May-11May-11May-11May-11May-11May-11Jun-11Jun-11Jun-11Jun-11Jun-11Jun-11Jun-11Jun-11Jun-11Jun-11Jun-11Jul-11Jul-11Jul-11Jul-11Jul-11Jul-11Jul-11Jul-11Jul-11Jul-11Jul-11Aug-11Aug-11Aug-11Aug-11Aug-11Aug-11Aug-11Aug-11Aug-11Aug-11Aug-11Sep-11Sep-11Sep-11Sep-11Sep-11Sep-11Sep-11Sep-11Sep-11Sep-11Sep-11Oct-11Oct-11Oct-11Oct-11Oct-11Oct-11Oct-11Oct-11Oct-11Oct-11Oct-11Nov-11Nov-11Nov-11Nov-11Nov-11Nov-11Nov-11Nov-11Nov-11Nov-11Nov-11Dec-11Dec-11Dec-11Dec-11Dec-11Dec-11Dec-11Dec-11Dec-11Dec-11Dec-11Jan-12Jan-12Jan-12Jan-12Jan-12Jan-12Jan-12Jan-12Jan-12Jan-12Jan-12Feb-12Feb-12Feb-12Feb-12Feb-12Feb-12Feb-12Feb-12Feb-12Feb-12Mar-12Mar-12Mar-12Mar-12Mar-12Mar-12Mar-12Mar-12Mar-12Mar-12Mar-1214
34
54
74
94
114
134
154
174
The leading UK commercial TV broadcaster; had a change of management in 2010 (new CEO, Adam Crozier)
New management team has focused on driving cost control and strengthening the balance sheet (now have positive net cash)
Bought ITV in January 2012, as earnings outlook improved; since added to the position as the newsflow has improved further, benefiting from positive trends in net advertising revenue and more cost cutting
Consistent upgrades to earnings estimates and the company recently reintroduced a dividend
... a favoured positive newsflow stock idea
Source: Datastream. Rebased to 100 as at 31/12/08 Data to 31/03/12. Returns are in GBP.
Relative Price vs. FTSE AllShare
JPM Claverhouse AGM April 2012
15
40
90
140
190
240
290
340
390
440
490
Stock example: Taylor Wimpey
Top three UK housebuilder, having restructured and sold off its North American business in 2011
Now a UK focused housebuilder, trading at one of the cheapest valuations in the sector, at just 0.7x tangible book value
Management has focused on cost-cutting and improving its financial position since 2009 housing market crisis
Recent newsflow has been positive, with company experiencing a solid start to the new year, improving margins and higher average selling price guidance
Relative Price vs. FTSE AllShare
Source: Datastream. Rebased to 100 as at 31/12/08 Data to 31/03/12. Returns are in GBP.
... a value opportunity which we have recently increased
JPM Claverhouse AGM April 2012
16
Stock positions
2012 to date has seen an improvement in some UK companies’ earnings prospects post the trials of second half of 2011
There are still plenty of value opportunities, including amongst some of the larger UK companies, with attractive dividend yields and growing dividends
As at 31 March 2012
Largest 10 overweight positions (%)PrudentialBPNextDrax GroupAstraZenecaEasyjetPetrofacBarclaysLegal & GeneralBT Group
Largest 5 underweight positions (%)BG GroupReckitt BenckiserTescoSABMillerStandard Chartered
Source: JPMAM
... investing in value and momentum opportunities
Series1
-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0%
-1.9-1.7
-1.5-1.5
-1.3
1.01.01.01.11.11.2
1.51.51.5
1.9
JPM Claverhouse AGM April 2012
17
2.0%
1.9%
1.6%
1.5%
1.2%
-1.2%
-1.4%
-1.7%
-1.8%
-2.2%
-2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
Life Insurance
General Retailers
Pharma. & Biotech.
General Industrials
Nonlife Insurance
Food & Drug Retailers
Mining
Beverages
Banks
Gas, Water & Multiutilities
Sector positionsAs at 31 March 2012
Active weightings, relative to FTSE All-Share (%)
Source: JPMAM
... positions a result of stock selection decisions
JPM Claverhouse AGM April 2012
18
Agenda
New strategy for Claverhouse
Performance review of 2011
Current portfolio positioning
Market outlook
JPM Claverhouse AGM April 2012
Gearing Influences (6 month view)
Martin PorterHead of Global Equities
and Multi Assets
David ShairpGlobal Strategist
GearingStephen Macklow-Smith
European Gearing Committee
Portfolio
Bottom Up Research/ Company meetings
(positive/neutral) (neutral)
(mildly positive) (neutral)
19
JPM Claverhouse AGM April 2012
20
Jan-84 Jan-87 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-116
8
10
12
14
16
18
20
22
UK equity market valuation
FTSE All Share prospective price/earnings ratio (x)
Average = 13.0x
Source: UBS. Data March 2012.
... 20% below long term average
JPM Claverhouse AGM April 2012
05
10
152025
UK USA Europe exUK
Japan Pacific exJapan
EmergingMarkets
21
World Markets
2012 Price Earnings (x)
Source: UBS
012345
UK USA Europe exUK
Japan Pacific exJapan
EmergingMarkets
2012 Dividend Yield (%)
Source: UBS
... UK market relatively good value
JPM Claverhouse AGM April 2012
20012000
19991998
1997
19961995 1994
19931992
1991
199019891988 1987
198619851984
1983198219811980
1979
19781977
1976
1975
1974
1973
19721971
1970
-6
-4
-2
0
2
4
6
8
10
12
14
16
18
20
4 6 8 10 12 14 16 18 20 22 24 26 28
Starting Period PER (X)
Average 10 year real total return (% per annum)
Buying equities cheaply key to future returns
22
Source: Oriel
… history suggests the current prospects for equity returns are very positive
Historically the lower the price paid for equities, the better the returns over the next 10 years
At today’s price, history suggests 10%+ returns per annum for the next decade
JPM Claverhouse AGM April 2012
23
International nature of the UK equity market
29.2%
15.4%
23.2%
10.0%
4.2%
18.0%
Chart Title
UK
Continental Europe
Americas
Asia-Pacific
Africa & Middle East
Others
UK market geographical revenue split
Source: HSBC
... UK equity market gives international exposure
JPM Claverhouse AGM April 2012
24
3
4
5
6
7
Eurozone...a sleeping crisis?
A half constructed political and currency union
A massive economic experiment
Fundamental problems have not yet been resolved
Losers (periphery) may cause contagion throughout the region
Spain and Italy are particular worries
Source: Bloomberg
Spanish 10yr bond yields (%)
... Spain is a real worry
JPM Claverhouse AGM April 2012
25
Conclusion
Long term performance is still ahead of index, but short term performance needs to improve
Fund will have more conviction in our best ideas
Stock selection will be supplemented by structural and more tactical use of gearing
Claverhouse shares have an attractive yield and its dividend has grown for 39 consecutive years
New year has started encouragingly
... focused on delivering performance
JPM Claverhouse AGM April 2012
26
J.P. Morgan Asset Management
Any forecasts or opinions expressed are J.P. Morgan’s own at the date of this document and may be subject to change. The value of investments and the income from them may fluctuate and your investment is not guaranteed and investors may not get back the full amount invested. Past performance is not a guide to future performance. Exchange rates may cause the value of underlying overseas investments to go down or up. Investments in smaller companies may involve a higher degree of risk as they are usually more sensitive to market movements. Investments in emerging markets may be more volatile than other markets and the risk to your capital is therefore greater. Also, the economic and political situations may be more volatile than in established economies and these may adversely influence the value of investments made. Telephone lines are recorded and may be monitored for security and training purposes