Welcome to the 2023 annual general meeting
of JP Morgan Claverhouse Investment Trust PLC.
Arrangements have also been made for registered shareholders
and other interested parties to view this meeting
and ask any questions via webcast.
Welcome also to those joining us online today.
Let me start by introducing the members of your board.
My name is David Fletcher and I am chairman of the board.
The other members of the board with me in person
today are on my right, so your left, Nicholas Melhuish,
chairman of the audit committee.
Next to him is Joanne Fintzen, who joined the board
on the 3 of October 2022.
To my left at the far end is Jill May,
who is a senior independent director
and the chair of nomination and management engagement
committees.
Next to her is Victoria Stewart, who
is chair of the remuneration committee.
Next to me is Emma Lamb, representing the company
secretary on behalf of Meagan Funds Limited.
We also have portfolio managers William Eden and Callum
Abbott, who are sitting in the front row.
Finally we have representatives of JP Morgan
here, including Sam Elliott, a client director
within JP Morgan investment trust department,
and representatives of the company's broker,
Numis, and the registrar.
Now let me explain the format of today's meeting.
We'll start, as always, with the presentation from William
Meadon and Callum, after which shareholders
will have an opportunity to ask questions.
We will then deal with the formal business of the meeting
as laid out in the notice of meeting
on pages 92 and 93 of the annual report on accounts.
In line with the practice of many public companies,
voting for all resolutions during the annual general
meeting will be conducted by way of a poll
rather than on a show of hands.
Calling a poll can aid the smooth running of the AGM,
and is recommended by investor bodies
since the process is deemed to give greater transparency
to the voting figures.
I will explain the poll procedure later in the meeting.
Finally, we will adjourn for refreshments,
which will give you an opportunity
to meet the directors, the portfolio managers, and others
on an informal basis.
So firstly, let me hand over to William and Callum
for the presentation.
Well good afternoon, ladies and gentlemen.
It is very nice to see so many familiar faces here again
today.
My name is William Meadon, and I've
been the manager of the Claverhouse portfolio for you
since March 2012, and I was joined some
five years ago by Callum to co-manage
the portfolio with me.
Callum and I have a presentation of some 25 minutes
or so, and afterwards will be very happy to take
any questions you may have.
We're going to look back at 2022 and the longer term
record of the house and the events that have taken place.
And 2022 was, of course, a particularly bleak year
following the invasion of Ukraine
by Russia at the end of February last year,
the consequences of which, of course were still living with.
But there was some good news to report in 2022,
and that was that the board of the Claverhouse
put up the dividend to you, the shareholders,
for the 50th consecutive time.
We think it's difficult surprisingly difficult to find
out exactly what that dividend, that first dividend was back
in 1972 that was increased change of currency
from decimalization in the mid 70s share splits and so forth.
But we think it was approximately
a ha'penny of today's money.
And that compares to the 33P dividend, which you all
received for 2022.
And we have a page here, which shows each individual year's
dividend.
And the takeaway from that, of course,
is the power of compounding.
If you increase every year just by a little bit,
the chart goes to the parabolic.
And we've listed some of the events in the last 50 years,
and sadly, I was around for all this 50 years.
I can remember all of them.
My birth is sort of off the scale here,
but as one of my younger colleagues pointed out.
But we've lived through wars.
We've lived through the Falklands War, the Gulf War
and changed the prime minister, crashes of stock market.
But looking back at the 70s in particular,
it is uncanny, actually, how similar the key issues
were then back in the 70s to the issues
that we're all grappling with today.
Inflation was a major problem back in the 70s.
It peaked as we have here shown you are at 24%.
So if you think inflation is bad now, really bad
back in the 1970s.
You had a weak Tory government under Ted Heath, if you recall,
who was grappling with strikes and unions
and some of the things that we're experiencing today.
Europe was a major issue-- a lot of debate about
whether we should join what was then the EC, the European
Economic Community, which we joined 1st of January 73,
I think it was.
Russia was number one enemy--
Leonard Brezhnev, the head of the Soviet Union,
causing a lot of problems.
So, uncanny the similarities, but throughout it
all against this very volatile backdrop,
one of the few constants was the labor house dividend,
which we hope you're pleased with, that we've given you
that 50th consecutive dividend increase this year.
And it is one of the three exciting things
to shout about Claverhouse, the 50 consecutive dividend
increase.
It's the longest consecutive dividend
increases of any investment trust
invested or quoted on the London Stock Exchange, which is
invested solely in UK equities.
There are four or five other trusts
that have a slightly longer track record,
but they all have money invested overseas.
So if you want UK equities, if you want income,
Claverhouse has ticked both those boxes.
We have a strong medium and long term performance record.
I know you're all medium long term investors.
I've seen you coming here for years after years.
We appreciate your support and your patience and your time
horizon, and I think that's particularly
important in the current very volatile world
that we live in at the moment, and we'll
be going through that record again in a second.
As I say, the third exciting thing-- and I
think it is genuinely exciting, if that's
how you define excitement-- is that we're invested wholly
in the UK stock market.
And I think it's just--
I think it's a really good place to be
invested at the moment for reasons
that we'll give you shortly.
A bit more on the dividend then.
If we go back here to 2008, and if you
were having 100 pounds of income from Claverhouse, which
is the yellow line, that income, that 100, will have gone,
will have doubled.
It'd be 201 now.
That's the income you would be getting.
Inflation over that period has gone up 44%.
That's the blue line.
What's really surprising here-- actually
surprised me when it came out-- if you had an index
fund in the UK stock market, the dividends you'd have had
would now, would just be 29% higher.
And as you can see, it's been a pretty volatile ride
along the way as well.
You've had years like 2008 where dividends
were cut substantially.
You've had better years.
But it's been volatile, it's been bumpy,
and you haven't ended up with so much at the end.
So Claverhouse has given you much better dividends,
and in a much smoother way.
And on the right hand side, it's a bit technical--
this chart is basically showing you on the vertical axis
dividend cover, i.e.
the profits, the earnings, are those greater
than the dividend paid out.
And as you can see last year we're
quite high up on that axis.
We paid a cover dividend.
And the horizontal axis going along the bottom
is revenue reserves.
As you know, one of the key strengths
of investing in investment trusts
is that boards such as ours can in very good times where money
is plentiful, dividends are plentiful,
take some of that money away for when the inevitable happens,
and tougher times come along.
And this board and its predecessors
have managed I think that process very well,
and I think deserve thanks for their prudent and canny
management of dividend reserves.
But those healthy reserves that we still
have give us great confidence that we can keep those dividend
increases going for you.
So we have no intention of stopping at 50.
In terms of performance, I say, I
was appointed as your fund manager back in 2012.
Callum joined me some five years ago.
And here is the chart of total return for Claverhouse
on the blue line, and you've had exactly 150%
return over that period against the stock market, which
has returned 96%.
So 9.1% per annum.
Yes, it's been volatile along the way,
particularly in recent years.
COVID, when economies closed down for some two years,
in China's case three years, the Brexit referendum
which wrong footed many people and of course, the events
of February last year.
But 9.1% return if you've been invested
over that period, which I know many of you have,
and that's substantially better than the UK stock market, which
has returned 6.7%.
2022 was-- it was really easy to lose a lot of money
in 2022 because of the invasion of Ukraine.
The world started quite optimistic,
growth seemed to be picking up, inflation
seemed to be under control.
Then February the 24th, as we all know,
Putin invaded Ukraine, and that had
major consequences for the world and for investors.
The top yellow line-- the good news is the UK market
was exactly the place to be.
You didn't make-- you didn't lose any money.
It was volatile, but if you were invested
at the beginning of the year, you had pretty much
the same money at the end.
Claverhouse-- it wasn't one of our better years.
We were wrongly positioned for the war
we, like so many others, didn't anticipate,
and we had to make a lot of changes
in the portfolio, which Callum will discuss with you shortly.
Thank goodness we did, and the second half was so much better.
But you ended up with a total return of minus 5,
which underperformed the index of flat.
But look what happened in Europe.
You lost 14% if you had an index fund there in local currency.
The US market down 18% in local currency.
I haven't put the NASDAQ down here,
which is the tech index which so many people were invested in
down some 25 to 26%.
I mentioned Bitcoin and some of the things
that were so fashionable eighteen months ago.
I think you lost 50, 60% of your money in cryptocurrencies.
So an easy year to lose money.
We're disappointed that you are down 5%,
and we're shareholders as well.
But again, what could have happened if you
had your money elsewhere?
We don't think that's too bad a result,
and markets have bounced a bit since the year end.
But even if you were invested within the UK,
there weren't many outperformers.
Only 23% of stocks in the UK outperformed last year.
There was a very narrow cohort.
The market went very, very risk averse, understandably,
after the events of February, and the market took the view
that only a few companies were well placed to deal with this.
Those companies that had profits that
didn't depend upon the economy and could cope with inflation
that was coming down the line.
So the tobacco stocks, the pharmaceutical stocks,
the utility stocks, and we had most of those,
as Callum will show.
But in a risk controlled portfolio like Claverhouse,
we think it's right not to have all your money in just
a few stocks.
We run a 60 to 80 stock portfolio for you.
It's a diversified portfolio.
And you can see how painful it was
if you had any if you were anything
outside that top cohort.
77% of stocks underperformed, some
of them markedly so, and not because they did badly.
It was just a D rating from investors
saying there's a really tough world coming,
there's a storm brewing--
quite right.
Let's mark those shares down, which we just
don't think they can cope.
So difficult-- really difficult.
There's our track record.
So not our best year-- down 5.4% in terms of share price,
which has hit the 3 numbers, the five year numbers on share
price still ahead.
I know many of you who have been investors for 10 years
but with 2.4% per annum ahead over the 10 year period,
and there's a pick up in the most recent numbers--
bring you right up to date for first start of this year.
The UK market has rallied slightly.
The overseas markets have been better.
Our shares actually are flat, roughly year to date,
and the main reason for that is that the discount has gone out
to a discount from a premium.
We can go into the reasons for that later,
but there was a big placing of Claverhouse
in the market from the merger of two investment trusts.
So in a short outcome, I'll give you our investment outlook,
but just before I do that, I'll hand over to Callum
to give you some more detail on the year of 2022.
Thanks Will, and good afternoon, everyone.
It's great to see some familiar faces,
and looking forward to catching up over some food shortly.
I'm going to take you through our performance
attribution for last year, and as well, discuss
a bit about our process, a reminder there, and then
how we're positioned currently.
So starting with the performance attribution.
As Will said, it was an incredibly narrow market
last year as investors fled to just a few stocks
that they thought were well positioned to cope
with the market environment.
The good news was we had significant capital
in a lot of those stocks, and you
can see that the likes of Shell, BP, Glencore and AstraZeneca
were big active positions there that did generate
a lot of positive alpha.
However, as Will alluded to earlier,
there was a lot of pain behind the benchmark.
And so while the benchmark was flat,
the vast majority of stocks underperformed,
and a lot of them underperformed that benchmark quite
materially.
And as Will said, it wasn't really driven
by earnings downgrades or profit warnings from companies.
It was more that investors wanted
to focus only on a few stocks, and everything else
got D rated by the side.
And so as we look at our top detractors,
there are a lot of names we still like.
Intermediate Capital Group, Watches of Switzerland,
Dunelm--
we think these are long time winners,
but last year fell significantly,
and these kind of positions cause us quite a lot of pain.
Unfortunately, there is a longer tail of these kind of stocks
than there were of the winners that you
see in those top contributors, and that ultimately drove
the underperformance last year.
And I'm happy to go into more detail process in the Q&A
or over lunch.
So just a reminder on our process.
We build a portfolio that has both value and growth.
And so what you're getting there is a core exposure.
You're getting exposure to cheap stocks as well as growth
stocks, and we think there's some clear benefits
to this approach.
First of all, it gives you natural risk diversification,
because typically value and growth work at different times.
So you have a diversified portfolio
from a risk perspective.
So you don't have all your eggs in just one of those baskets,
and so if you call value wrong or you call growth wrong,
it can be very painful if your portfolio is only
exposed to just one of those approaches.
It also means that we had the broadest opportunity set
as we can select the best value and growth
stocks within the market.
In terms of those specific buckets,
I won't go into each individual stock,
but if you look at our growth names,
it tends to be structural winners.
They tend to be market share gainers, perhaps
where a company can use its scale
or technological advantage or operational excellence
to win market share against weaker competitors,
or it's companies that have got a lot of innovation--
renewables or pharmaceuticals developing life changing
drugs like AstraZeneca does, which we believe
is going to drive a lot of growth into the future.
In the value side of the portfolio,
we see significant value in the UK.
It is clearly one of the cheapest,
if not the cheapest, developed market in the world,
and a lot of the stocks within it
are not only cheap by their history,
but they let remarkable value against peers,
and Will will pick that up later in the presentation.
But we think for patient investors
that value will eventually be realized, and in the meantime,
we're getting paid significant dividend income
to hold those companies.
So just dive into two of our biggest holdings.
Firstly, we have 3i Group.
This is a private equity company whose biggest
holding is a discount retailer called action.
Unfortunately, they haven't rolled
out any stores in the UK, but they're
rolling out across Europe a very rapid rate.
There's a lot of white space ahead
of them, which means that growth opportunity has long duration,
The rest of the prize portfolio is
in a variety of diverse sectors with different end markets,
and they've got a great track record of picking winners.
And you can see in that top left hand
chart which shows NAV per share, which is effectively
how much value they've created over time.
And since 2012, they've increased the value
of their portfolio by 5 times.
So really fantastic track record.
And yet if you look at that top right hand chart,
that shows its price to book ratio,
an indication of the value of the shares.
And clearly they don't look particularly highly
rated compared to history, despite the fantastic track
record and execution.
So we think this is a real long term
winner with a lot more growth to go that's trading
at a very attractive valuation.
On the next slide, you can see SSE.
SSE is a utility company.
It's got three main business parts to it.
First is its networks business, which is effectively
power infrastructure.
This is a highly regulated steady business
that gives some ballast to the SSE's earnings.
Next largest bit is their wholesale business,
which is effectively power generation,
and has been trading very well, mostly
related to the high energy prices
that we're all familiar with.
And then finally, and probably the most exciting part
of the business, it's renewables.
It's got large exposure to offshore wind
but is looking to triple that in the years up to 2030.
So we see significant growth opportunity
as it builds up its renewables business.
But once again, interesting about SSE
is that if you look at that top right hand chart, that's
its price earnings ratio, and you
can see that over the last five years
it's really right towards the bottom of the range.
Yet we think the opportunity is that for SSE is as attractive
as it's really ever been.
And so we believe it should be trading much higher multiple
than it is.
This is a bit of a busy slide, but I just
wanted to flag a few of the portfolio characteristics
at the moment.
And so the three key points, really,
are our level of gearing is currently about 3%,
but in the chart-- this is at the end of March--
you can see it's 1 1/2 %.
So we're sailing quite close to the shore
from a gearing perspective, reflecting
how challenging the macro environment
is, although we do see a lot of opportunities
within the market.
Secondly, if you look at that right hand graph,
you can see that we're leaning into the FTSE 100,
and that's where we see the most value.
And we see a lot of robust cash generative businesses
that we believe are well positioned
to deal with a challenging macro environment.
And finally, if you look at the star characteristics
box in the bottom left, you can see
that the portfolio is cheaper than the market, better
quality, and better earnings revisions,
and we think over the long term that's
exactly what you want your portfolio to do,
and that will generate value.
Also, our sector positioning--
I'm going to dive too deeply into any individual sector.
Again, I'd be very happy to take any questions on it later.
But you'll see there's a mixture of both value and growth
sectors.
It's quite diversified, and again,
that reflects that barbell approach,
while sector positioning is ultimately driven by the stock
opportunities we see.
And so really, it's just an outcome of our stock picks,
but we think this is a portfolio that's
built well positioned to deal with a challenging macro
environment.
And then, on to the portfolio positions.
Again, I won't dive too deep into any one stock, but if--
I'd be very happy to take any questions later--
but it's a highly diversified portfolio
in terms of both value and growth.
And we are seeing significant opportunities to deploy capital
whilst being conscious of how challenging the macro
environment is.
So I'll leave it there and pulse back to Will to take you
through the outlook.
Thanks.
So the economic and stock market outlook.
I preface everything I'm about to say with,
it's much more difficult than usual
to say anything with any high degree of conviction,
given the backdrop of Ukraine Russia, which
is having many serious consequences which
the authorities and individuals are struggling to get to grips
with.
And one of those, of course, is inflation,
and we've got something here called our inflation
heatmap, which basically-- when it's dark red,
inflation is sort of up towards the double digits,
and when it's blue, it was very low inflation,
or sometimes deflation-- prices going down.
And you can see how over the last just two years,
the inflation backdrop has changed markedly.
And the UK does seem to have a particular problem.
It's the only country in the G7 still
to have double digit inflation.
The latest print for March was 10.1.
And this is important because it dictates what
interest rates are going to be.
It dictates how well off people are
going to be, can we get wage rises to match inflation.
So this is what one of the main reasons why
it's so difficult to make any firm predictions because quite
clearly inflation isn't anywhere near down
to target levels in the UK.
The target is 2% We're currently 10.1.
That's sort of known.
It's in the newspapers.
I've just told you.
It isn't it isn't a well kept secret
that inflation's a problem.
Of course it's bad news.
The UK has a particular problem, but what is
in stock market prices already?
And there's a chart here of the rating of the UK
market against world market.
So when the line is high, people have high expectations
for the UK and you pay a lot for the UK stock market.
And when it's low as it is now, you're
getting the UK stock market on the cheap
compared to overseas markets.
And I talked to you earlier about the problems
in the 1970s, which were far more acute than they are now.
But the rating-- the amount you're paying for UK share--
is very similar to those very bleak times of the mid 70s
when inflation was 24% and Denis Healey
was going to the IMF for a bailout.
So as ever, investors have to try and work out firstly
what's happening in the world, but secondly, how much of that
is known and how much is in prices already.
And very often you make money in the stock market
your best money when things are really bleak,
because the bad news has been over discounted.
So in terms of plain probabilities,
by being in the UK, in terms of the price you're paying,
it looks like the probabilities--
the odds are on your side at the moment.
I give you three just big stocks here, all
FTSE stocks-- three stocks, which
play the house owns in size, and it's just
comparing their rating, how expensive or cheap they are.
The UK ones are the blue ones compared
to a very similar company of theirs in their peer
group in the United States.
So on the left hand side, Shell, an oil company,
very similar to ExxonMobil in the States.
Oil companies do pretty similar things.
They drill for oil.
They hopefully get it, they bring it out, they refine it,
and they sell it at the global market price.
Now I don't know ExxonMobil as well as I know Shell,
but I'd be surprised if it was 40 odd better at what
it does than Shell is.
Diageo Brown-Forman-- Diageo, purveyor of--
perhaps some of you know Johnnie Walker whiskey, Guinness,
which is good for you, as against Brown-Forman,
Jack Daniel's.
Now Jack Daniel's Johnnie Walker.
I'm not a whiskey drinker.
There maybe not-- there may be a lot to choose between them.
But the stock market is saying that Diageo
deserves a 24% discount.
Tobacco companies-- British tobacco versus Philip Morris.
Tobacco companies really are very similar,
and yet look at the discount-- more than 50%,
which British American Tobacco is trade to Philip Morris.
Now of course, we can talk about this over questions--
this is why some UK companies are saying we're
a bit fed up with our rating.
We're going to go invest in the US.
And that is a very live issue which
we can perhaps discuss later.
But it is demonstrable or more evidence
how cheap the UK stock market is.
Another reason to be in the UK stock
market-- you remember it's one of those three exciting things
about Claverhouse.
We're just invested, unlike most of our competitors,
in the income sector in the UK market,
solely in the UK market.
And value is coming back into fashion.
Now we're talking about value growth.
This is style investing, so simplistically, a growth
company is one that's growing very, very fast.
They tend to be on a very high rating
because the stock market is optimistic about them.
But history tells you the stock market
tends to overrate those shares, and it's quite dangerous,
because it's all in the price and more
when you buy growth share.
But you've got to be really sure that those growth
expectations can be met.
Now post the Ukraine invasion of February last year,
the stock market has gone away from those growth companies,
NASDAQ being the prime example of that-- full of tech
companies, some of them still not making any money.
Massively de rated, lost a lot of money if you've been there,
and they've come to what they believe
to be the safer shores of the UK where you have VAT,
you have Glaxo, you have AstraZeneca,
you have Shell, which run really low ratings.
So value has come back into fashion--
that blue line-- and it's correlated almost one to one
with the UK stock market.
And you saw earlier on how well the UK stock
market did relatively.
You didn't lose any money in the UK stock market.
You lost a lot of money overseas.
Now, is that a turning point, or is it the start of a trend?
Well, we think it's the start of a trend,
but what this is telling you, if you haven't got much money
in UK equities, which a lot of investors
happened because they seem to be much more excitement elsewhere,
now is probably the time to start shifting your portfolio
a bit more back to the UK.
So to conclude, what does-- and it
is-- a new investment landscape post Ukraine look like?
And the world has changed both in reality and for investors.
And I put together what we think are four key takeaways for you
to bear in mind.
The first is that the what I call the rich quick era
is well and truly over.
That is the era of just buying something
because it's exciting.
You don't really know what it does
but you think it's going to go up
and you sell it to someone else for a higher price
and you make money very, very quickly,
and we've all been able to do that a bit
to a greater or lesser extent in the last 10 years.
That is well and truly over.
Fundamentals are back in fashion.
There's renewed focus on those and cash flow and balance
sheets on experienced management or products
on barriers to entry--
all the things investors used to be interested in until you get
sucked into the bubble like the one
we've had the last few years.
You need to take a long term view of your investments,
because as I said at the outset of this outlook, prediction--
predicting anything with any high degree of certainty
is really, really difficult at the moment.
So take a long term view.
Buy something that you're comfortable with
and hold it would be my advice.
The second takeaway of the last 12 months
is that valuation matters.
What you pay when you first buy security,
how much you pay for it, is the key determinant
of what your returns will look like over the next few years.
If you buy a really expensive share,
you're not putting your odds on your side
that you will make good money from that.
If you buy a cheap share, provided
it's a reasonable quality, and some shares are, of course, not
a reasonable quality and they're cheap for a good reason--
but if you can buy a portfolio, I would say this,
wouldn't I, of Claverhouse-- full of blue chip
largely FTSE companies, proven management, proven products,
global companies invested around the world,
and you can buy them cheaply as they are at the moment,
it doesn't guarantee you a good return,
but it's putting the odds on your side.
The third point is, in a world, which
I think is going to be of fairly low returns
until the investment sky is clear,
secure income is really important.
None of us know for sure what the capital of your investments
is going to do, whether it's in the UK,
overseas, whether it's bonds, whether it's property,
the world is a really uncertain event--
place at the moment.
Or when events take place they tend
to take place quite quickly.
But if you're looking, as most people are, for 7%,
8% absolute return over the medium term,
and you can invest in an instrument that is yielding
you, as Claverhouse is, approximately 5%,
you're off to quite a good start.
You haven't got to make quite so much on your capital
to get that 8% return.
And the final point is that I'm afraid we all
have to brace ourselves to expect the unexpected to happen
much more often.
We looked back over what's happened over the last 50
years, and of course, events do happen all the time.
But the world is a much more interconnected place now.
Economies are more interconnected, much more
global.
Stock markets are much more interconnected,
and when things happen, a bit like some of the runs
you've seen on US banks.
In the regional US banks, apps, technology,
means you can take your money out to the push of a button.
It happens so much more quickly.
And that's the nature of the world we live in,
and it's an opportunity and it's a threat,
but we have to brace ourselves and have
to prepare ourselves for that.
I've given you this quote before,
and I shamelessly give it to you again,
because when he died at the end of the 19th century,
Rockefeller was the richest man in the world.
And he, even then before living through the events
that we've just discussed--
he knew the best thing the thing that
really routes your investment is the income that investment pays
to you, and the more secure that income stream is,
the better your investment over the long term will be.
And in an uncertain world if you can
get that security of income, it should give you
the pleasure that it gave to gave
to Rockefeller in his lifetime.
So I conclude on that.