JPMorgan Claverhouse Investment Trust

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


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


4

Agenda

New strategy for Claverhouse

Performance review of 2011

Current portfolio positioning

Market outlook


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


6

Agenda




Market outlook


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


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.


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


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).


11

Agenda




Market outlook


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%

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... early implementation of new strategy for Claverhouse


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


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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


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


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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


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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


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Agenda




Market outlook


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)

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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


05

10

152025

UK USA Europe exUK

Japan Pacific exJapan

EmergingMarkets

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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


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

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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


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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


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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


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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


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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

JPMorgan Claverhouse Investment Trust

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