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.
Questor says: hold
Share price at close: 569p
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”.
Questor says: hold
Share price at close: 82.7p
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