Annual Financial Report

RNS Number : 5808E

JPMorgan Claverhouse IT PLC

14 March 2022

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CLAVERHOUSE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER 2021

Legal Entity Identifier : 549300NFZYYFSCD52W53

Information disclosed in accordance with the DTR 4.1.3

The Directors of JPMorgan Claverhouse Investment Trust plc announce the Company's results for the year ended 31st December 2021.

CHAIRMAN'S STATEMENT

Performance and Manager Review

The year to the end of December 2021 continued to be dominated by the Covid-19 pandemic, with the emergence of the Delta and then the Omicron variants. The UK Government's Covid vaccine and booster programme has successfully fully vaccinated 49 million people against the virus and more recently several of the restrictions we had become accustomed to have been removed and life is gradually returning to a semblance of normality. UK GDP growth in 2021 increased by an estimated 7.3%, following a fall of 9.4% in 2020.

For the year to 31st December 2021 the Company's net asset total return (based on debt being valued at par) was +21.5%. This compares with a total return for the same period from the Company's benchmark, the FTSE All-Share Index, of +18.3%. The Investment Managers' report on pages 10 to 17 of the Annual Report provides more detail on performance during 2021, as well as reviewing the market and the Company's portfolio.

As at 10th March 2022 the Company's NAV per share (with debt at fair) was 680.0p and the share price was 679.0p.

Revenue and Dividends

The Directors have declared a fourth quarterly interim dividend of 9.50p per share for the year ended 31st December 2021 which will bring the total dividend per share for the year to 30.5p (2020 total: 29.5p). This represents the 49th successive year in which the dividend has been raised and is an increase of 3.4% over the previous year. Revenue for the year to 31st December 2021 increased to 30.8p per share (2020: 23.2p).

The Board's dividend 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. As can be seen from the chart and table below, the Company has consistently paid dividends over the last 10 years above inflation (CPI) and above the dividend growth of the UK market as a whole (as measured by the constituents of the FTSE All-Share Index).

		JPMorgan Claverhouse IT	UK Market
	CPI	DPS Growth	DPS Growth
	(% per annum)	(% per annum)	(% per annum)
3 Year	1.8%	3.5%	-13.1%
5 Year	2.1%	5.8%	-4.9%
10 year	1.8%	5.2%	1.4%

Source: Office of National Statistics

With UK inflation now at a 30 year high the Board will continue to monitor carefully the outlook for dividend income but, taking into account the Company's revenue reserves, currently expects future dividend increases to enable the dividend policy to be met. The Board intends to increase the first three quarterly interim dividends in 2022 from 7.00p per share to 7.50p per share.

Premium/Discount and Share Issuance/Repurchases

During the year the discount to net asset value ('NAV'), with debt at fair value at which the shares traded ranged from a premium of 1.4% to a discount of 2.4%. As a result, in the year to 31st December 2021 the Company has re-sold 513,290 shares from Treasury and issued 835,000 new shares at a time when the shares were trading at a premium.

At this year's AGM in April the Company will be seeking renewed authority from shareholders to sell shares from Treasury at a discount, to issue new shares and to repurchase shares. The Board agreed in 2021 that the net asset value used for all three corporate actions will be calculated on the same basis as that announced daily to the market, namely cum income NAV, with debt at fair value. All other parameters will remain the same.

The comparison between the debt at par and fair value net asset value reflects the difference between the interest paid on the Company's long-term debt (the 3.22% £30 million private placement loan) and current interest rates. The two calculations of NAV will therefore vary in accordance with prevailing interest rates and will change over the life of the long-term debt. At present the difference between the two methods of calculation is approximately 2%. The Investment Managers' contribution to net asset value performance should be looked at without regard to the long-term debt interest rate, over which they have no control; the cum income NAV with debt at par will therefore continue to be reported in the annual and interim reports. However, as mentioned above, the cum income NAV, with debt at fair value, will be used for the purposes of decisions on share buybacks and issues, as being the basis on which the NAV is announced to the market.

Gearing/Long Term Borrowing

The Investment Managers can use FTSE 100 index futures to effect reductions in the level of gearing by reducing portfolio exposure. The Company's gearing policy (excluding the effect of any futures) is to operate within a range of 5% net cash and 20% geared in normal market conditions. The Investment Managers have discretion to vary the gearing level between 5% net cash and 17.5% geared (including the effect of any futures).

Taking into account borrowings, net of cash balances held and including the effect of futures, the Company ended the year approximately 8.8% geared. During the year gearing varied between 8.8% and 13.4% (including the use of futures) and the average gearing reached during the year was 11.3%. Currently the Company has a net cash position of 1.3%, (including the effect of any futures). The Company has a £30 million 3.22% private placement loan, maturing in March 2045. The Company also has a revolving credit facility of £80 million, of which £70 million was drawn down as at 31st December 2021. See Note 13 on page 73 of the Annual Report.

Environmental, Social and Governance issues

ESG issues are fully integrated into the Manager's investment decisions and considered at every stage along the decision making process. The Board shares the Investment Managers' view of the importance of ESG factors both when making investments for the long term and the necessity of continued engagement with investee companies throughout the duration of the investment. This annual report includes a separate Environmental, Social and Governance Report from the Manager on page 18 of the Annual Report which provides comprehensive information on these issues and how they have been developed and integrated into the Manager's investment process.

Investment Management Fees and Manager Evaluation

The investment management fee is charged on a tiered basis at an annual rate of 0.55% of the Company's net assets on the first £400 million and at 0.40% of net assets above that amount.

During the year, the Management Engagement Committee undertook a formal review of the Manager, covering the investment management, company secretarial, administrative and marketing services provided to the Company. The review took into account the Manager's investment performance record, management processes, investment style, resources and risk control mechanisms. I am pleased to report that the Board agreed with the Committee's recommendation that the continued appointment of the Manager is in the interests of shareholders.

Annual General Meeting

We are planning to hold this year's Annual General Meeting in person and it will be held at JPMorgan's offices at 60 Victoria Embankment, London EC4Y 0JP, on Friday 29th April at 12.00 noon. William Meadon and Callum Abbot will give a presentation to shareholders, reviewing the past year and commenting on the outlook for the current year. The meeting will be followed by a sandwich lunch, thus providing shareholders with the opportunity to meet the Directors and representatives of the Manager. We look forward to seeing as many shareholders as possible at the AGM.

For shareholders wishing to follow the AGM proceedings but choosing not to attend, we will be able to welcome you through conferencing software. Details on how to register, together with access details, will be available shortly on the Company's website: www.jpmclaverhouse.co.uk, or by contacting the Company Secretary at [e-mail].

As is normal practice, all voting on the resolutions will be conducted by a poll. Due to technological reasons, shareholders viewing the meeting via conferencing software will not be able to vote on the poll and we therefore encourage all shareholders, and particularly those who cannot attend physically, to exercise their votes in advance of the meeting by completing and submitting their form of proxy.

If you have any detailed or technical questions, it would be helpful if you could raise them in advance with the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP or via the 'Ask a Question' link on the Company's website. Shareholders who are unable to attend the AGM are encouraged to use their proxy votes.

If there are any changes to the arrangements for the Annual General Meeting, the Company will update shareholders through the Company's website and, if appropriate, through an announcement on the London Stock Exchange.

Board Succession

As indicated in my Half Year Chairman's statement, I have been a Director of the Company since 2013 and have served as Chairman since 2015; in line with corporate governance best practice I shall retire from the Board at the conclusion of the AGM on 29th April 2022.

The Board has agreed that David Fletcher will succeed me as Chairman. Jill May will replace David as the Senior Independent Director and Nicholas Melhuish will take over as Audit Committee Chair. Victoria Stewart will assume the position of Remuneration Committee Chair. The Board has engaged a recruitment consultant to search for a suitably qualified additional Director to join the Board in due course.

Outlook

While the worst of the Covid pandemic appears to have passed, at least in the UK, the effects of it on businesses and the economy will continue for some time. There are additional risks that we now face, including increasing inflation, interest rate rises and, most recently, the terrible conflict in Ukraine which could have material and mid to long-term implications for global businesses and economies.

There will be corporate winners and losers in the volatile markets that lie ahead and I am sure that the Investment Managers will be cautious in constructing and managing the portfolio, while working hard to seek out the winners and restrict exposure to the losers.

As this is my last Chairman's statement before retiring, I would like to conclude with some personal observations. Some years ago Claverhouse was one of the first investment trusts I invested in, paying a modest amount each month into the savings scheme then provided by the Manager. Regular investing is said to involve a pound-cost averaging investment strategy, whereby one buys into the market at different times and as a result averages out the cost. It is said that pound-cost averaging can smooth returns in investment markets that constantly move up and down.

While each investor must decide their own investment criteria and considerations, I believe that my long-term investment in the Company has been good, in that it has out-performed the benchmark over the relevant period, and has benefitted from the "get rich slow" attribute that has sometimes been given to the Company's investment strategy. The increases in dividends paid by the Company over 49 years have also been of attraction to those investors seeking regular and growing income.

I would like to thank my fellow directors for their support and contribution during my time on the Board and, as someone who intends to remain a shareholder for the foreseeable future, I wish the Company's fortunes well.

Andrew Sutch

Chairman

11th March 2022

investment managers' report

Investment Approach

Claverhouse is a diversified portfolio of our best UK ideas, comprising both quality growth and value stocks. As outlined on page 33 of the Annual Report, the risk controls during the year were amended to give us greater latitude in our stock selection.

For the patient investor, we believe that this approach will, over a run of years, produce outperformance of the index in a steady, consistent manner, irrespective of market conditions.

We aim to maintain Claverhouse's multi-decade dividend growth record.

Market Review

Equities globally were strong over the year and the UK was no exception. Investors continued to take heart from a confluence of good news: impressive vaccine roll-outs, the re-opening of economies and a continuing co-ordinated package of huge fiscal and monetary stimulus packages.

The UK and US both made significant strides in rolling out their vaccination programmes. Infection rates in both countries fell accordingly. Whilst Europe's roll out initially disappointed, by the end of the year it had improved considerably.

President Biden took office at the start of the year and made kick-starting the economy his top priority. This, together with the Federal Reserve chairman, Jay Powell making it clear that he was prepared to take some risk with inflation gave equities another fillip.

In the latter half of the year, England (unlike Scotland, Wales and many other countries) resisted locking down its economy again. As the potency of the Omicron variant faded, this proved a good decision and enabled its economy to continue its recovery trajectory. Overall, the UK economy performed much better than expected with real GDP growing by 7.3% over the course of the year.

However, many UK companies reported supply shortages, particularly of skilled labour, together with some degree of disruption at the ports - due largely to increased Brexit-related paperwork and continuing Covid-related complications. Inflationary pressures increased during the year, with the Consumer Price Index rising from 0.7% in January to 5.4% in December. Just before the year end, the Bank of England responded by raising its base rate to 0.25%; its first increase for three years.

The strength of the UK market was underpinned by a number of bids, as corporates and Private Equity groups took advantage of the UK's relatively low valuation.

Sectors geared into the global economic recovery (banks, oil and the mining sector) performed well. A return to dividend payments by many companies reflected the air of new-found confidence.

The total return on the FTSE All-Share index over the year was 18.3%.

Performance Review

The portfolio benefitted from both good stock selection during the year and by being geared into a rising market.

In the year to 31st December 2021, the Company delivered a total return to shareholders (capital plus dividends re-invested) of +21.5% compared to the benchmark FTSE All-Share Index return of +18.3%. With the Company's shares moving from a discount of 0.9% to a small premium of +0.2% (against NAV with debt at fair value) at the year end, the total annual return for shareholders was +24.3%. Further detail of Claverhouse's performance over the year is given in the accompanying table.

The Company's risk-controlled approach to sizing positions at both a stock and sector level has helped the portfolio navigate its way through these unprecedented times and also deliver a dividend increase for the 49th consecutive year.

Top Contributors and Detractors to Performance vs FTSE All-Share Index

Top Five Contributors		Top Five Detractors
Ashtead Group (OW)	+1.0%	Entain (OW)	-0.6%
Watches of Switzerland Group (OW)	+0.8%	Games Workshop Group (OW)	-0.6%
Unilever (not held)	+0.7%	Glencore (not held)	-0.6%
Impax Asset Management (OW)	+0.6%	JPMorgan UK Smaller Cos IT (OW)	-0.5%
Shell (OW)	+0.5%	BT Group (UW)	-0.4%

Source: JPMAM, as at 31st December 2021.

OW indicates an overweight position.

UW indicates an underweight position.

Ashtead was the top contributor to the Company's performance over 2021. Ashtead is a construction and specialty equipment rental company. Demand for their products in 2021 was helped by the large amounts of fiscal stimulus in the US, which accounts for over 90% of earnings. Longer term, the rental opportunity in the US is particularly exciting. Rental penetration in the US is just 55% versus 75% in the UK but the gap is closing. The US rental market is highly fragmented but the biggest operators, and particularly Ashtead, are winning a share. Their recent strategy day set out the considerable growth opportunity that is ahead of them and the strong macro environment should further support the business.

Watches of Switzerland is a retailer of luxury watches. The company has strong relationships with key brands such as Rolex, which are in high demand. The company's strategy to expand into the US and Europe means there is a long road of growth ahead and the market has had to consistently upgrade expectations due to exceptional execution from the company.

Unilever (not held), the global consumer goods company consolidated its dual listing into just the London listing during the year which led to Unilever becoming the largest stock in the FTSE All Share. Although we would usually focus on those companies which we own, given its size, not owning Unilever was a significant decision. Unilever underperformed during 2021 as concerns over its ability to maintain margins and generate meaningful organic revenue growth have returned.

Impax Asset Management is a boutique investment manager with 100% of their funds being focused on ESG. They have attracted huge inflows over the last year; net flows in 2021 were 53% of their starting AUM which has led to consistent earnings upgrades. We are hopeful that this momentum can continue as their long track record in ESG gives them a strong competitive advantage.

Oil stocks globally outperformed and Shell was no exception. The oil price rallied off the March 2020 lows as the economic recovery led to a demand surge. On the supply side, the oil and gas sector has been starved of new capital for several years as investors have sought out greener alternatives. This has led to supply constraints which have created favourable conditions for the remaining producers. Against this more favourable backdrop, we expect the oil majors to be able to return large amounts of excess free cash flow to shareholders.

Entain was a significant detractor during the year. Entain is a diversified gambling business which is a market leader in retail and online operations across the world. The jewel in Entain's crown is their BetMGM JV with MGM in the US. BetMGM gives them exposure to the rapidly expanding US gambling market where changes in legalisation are paving the way for a potentially very significant new market opportunity. Entain's cutting edge technology combined with MGM's brand power in the US has enabled them to become one of the market leaders in the US. However, along with other highly rated names, shares in Entain underperformed in the fourth quarter as growth globally sold off. Games Workshop , the miniature figurines retailer, was another highly rated name which was sold off after a period of strong outperformance in 2020.

The new management team at Glencore is working hard to improve the company's ESG credentials but there is still a material overhang from outstanding legal cases against them, notably the US Department of Justice investigation is still outstanding. However, Glencore's exposure to metals needed for the electrification of economies globally is a key attraction of the stock. The global commodities rally throughout the year led to the stock outperforming, making our zero holding relatively costly.

The JPM UK Smaller Companies Investment trust , run by our in-house small companies team, underperformed after a very strong performance in 2020. Over the years, this fund has not only contributed materially to the performance of the Company, but as stocks have grown out of the smaller companies index and into the FTSE 350, it has also provided a rich source of many new ideas for us to invest in directly. The home furnishings retailer, Dunelm is just one very rewarding example of this.

Highlighted Company: Watches of Switzerland Group

Watches of Switzerland (WoS) , is a luxury watch retailer with shops in the UK, US and Europe. Luxury items have seen consistent growth for many years, as a growing cohort of wealthy consumers seek exclusive product that exhibits their wealth. Luxury watches are in high demand and manufacturers limit supply, giving them strong pricing power whilst maintaining exclusivity.

WoS is the dominant luxury watch retailer in the UK with 37% market share and joint market leader in the US, but with just 8% market share. An important factor in its success is its strong relationships with the key luxury watch brands, particularly Rolex. There is a virtuous circle of success, with the top brands distributing their product to a select group of retailers that are professionally run and respect the brand; this drives customers seeking exclusive product to these retailers, which facilitates growing sales and a stronger partnership between the brand and the retailer. We believe the underlying luxury watch market will continue to grow and WoS's partnerships will be the foundation for winning more market share across its markets, with the greatest opportunity in the US.

Highlighted Company: Intermediate Capital Group

Intermediate Capital Group is an alternative fund manager running closed ended private debt and mezzanine finance funds. Over the last ten years, the company has grown third party assets under management by five and a half times and increased the number of strategies offered to clients from 5 to 19. At the start of last year, they set a target to grow assets by $40 billion over the next four years. In the first half of the first year of this target they raised around $14 billion showing there continues to be extremely strong demand for their products. We believe the company is likely to continue to raise large sums of assets at attractive fees driving profits higher.

Portfolio Review

The portfolio held 75 stocks at the end of the year which is towards the upper end of our normal range and reflects the attractive opportunity set we currently see in the UK market. The portfolio was geared throughout the year.

We are bottom-up stock pickers; sector and macro views have less influence on the portfolio. We aim to run a stock-focused but sector-diversified portfolio.

Your Company benefitted from both good stock selection during the year and being geared in a rising market. We have used FTSE 100 futures to manage gearing and, to a slightly greater extent than usual, to protect income.

At the year-end your fund was 8.9% geared.

Top Over and Under-weight positions vs FTSE All Share Index

Top Five Overweight Positions		Top Five Underweight Positions
3i Group	+2.5%	Unilever	-4.5%
Intermediate Capital	+2.5%	HSBC	-4.1%
Shell	+2.2%	Glencore	-2.2%
Ashtead	+2.1%	Reckitt Benckiser	-1.8%
Dunelm	+1.9%	National Grid	-1.7%

Source: JPMAM, as at 31st December 2021.

Purchases

One area which has proved remarkably resilient during the pandemic is luxury watches and Watches of Switzerland has been perfectly placed to capture this. Exclusive contracts with brands such as Rolex have given them a strong market position which only looks to be improving as luxury watch brands look to reduce the number of outlets they sell through and focus on scale operators like Watches of Switzerland. They have an attractive growth opportunity as they look to expand internationally which should further cement their strong relationships with brands.

Entain is a betting company which has exposure to both online and retail segments. Entain's joint venture with MGM Grand in the US is growing fast and they are emerging as one of the leading players in the US as states continue to relax their laws around gambling. Outside of the US, Entain has market leading brands like BWIN, Coral and Ladbrokes with a strong presence across most major European markets.

The global communication services group, WPP has been on a multi-year rebuild since Martin Sorrell left the group in 2018. Having undergone significant restructuring, the company is now well placed to capture a cyclical upswing in marketing spend as economies recover. Marks & Spencer is another company undergoing significant change to reposition itself in the eyes of the consumer, the early results of which look promising.

The UK housebuilders continue to look attractive as structural growth combines with cheap valuations. We retained significant positions in many of them, believing that their strong balance sheets make them resilient enough to withstand the economic downturn. We expect their strong balance sheets and cash flow to put them in a position to return significant capital to shareholders over the coming years. Taylor Wimpey and Bellway are two of the cheapest listed housebuilders, with significant potential to grow volumes and improve margins.

The bakery chain, Greggs' , market position has been strengthened by the exit of many smaller, independent food to go operators on the UK high street. Although the crisis has been tough for them, agile management have adapted quickly to provide alternative sales channels which should increase their market share as the UK economy reopens.

Impax and Liontrust Asset Management are boutique investment managers with a focus on ESG. They both have attracted huge inflows over the last year and we expect this momentum to continue as their long track record in the ESG space gives them a strong competitive advantage. Polar Capital is another asset management group which operates a range of long only and long short investment products. Around 50% of AUM is tech focused and this area has delivered strong returns (largest fund is +68% ahead vs the benchmark over 5 years) and flows over recent years (AUM has gone from £2.2 billion in 2017 to £10.2 billion in 2021). Diversification efforts should provide growth from other franchises.

Experian is a global technology company and market leading in data and analytics. The company started by providing credit information and assessing lending risks - but has now expanded their proposition to include data collection and analysis, data driven decision making, fraud detection and prevention. Experian continues to grow organically and has a strong record of cash generation.

BT Group is at the start of a turnaround under new management, who have purchased a significant amount of shares with their own money. The nationwide build out of fibre broadband is an excellent opportunity to generate attractive returns on investment over a multi-year period. This coincides with an improved relationship with the regulator.

Cranswick is a food products company. It has grown adjusted profit before tax every year except one in its 31 year history as a listed company and despite the challenges of last year was able to grow significantly again. They are market leaders in quality of service and product and we think this positions them well to grow their market share in both the poultry and pork markets.

Sales

We sold our residual holding in Unilever . In the short term, we are concerned that many of their products lack pricing power which will lead to increasing margin pressure as cost inflation picks up. More structurally, the evolution of online competitors has significantly lowered the barriers to entry for consumer goods companies and decreased the benefits of scale that Unilever once had. This means that Unilever will have to spend more on advertising than they have done historically in order to kick-start sales growth which is another significant margin headwind.

We sold our shares in Countryside Properties as we became increasingly nervous about their premium rating given the short term trading headwinds the company faced. The company's disappointing third quarter trading update made us nervous and prompted the sale of our holding.

Although we remain positive on the long term prospects for the London Stock Exchange Group (LSEG) , we think that management may have underestimated the complexity of integrating the Refinitiv deal. Refinitiv has some excellent assets but it also appears to have suffered due to underinvestment by its previous owners. LSEG therefore needs to invest significantly which will negatively impact margins for years to come. Moreover, growth may not return as quickly as had been first anticipated.

We sold the shares in a number of companies which continued to suffer from ongoing depressed demand induced by the pandemic. These included the general industrial company Melrose , the food outsourcing company Compass and the airline Easyjet .

Highlighted Company: Ashtead Group

Ashtead is a rental company for industrial and construction end markets. Recently the company has benefitted from a rebound in construction activity driving strong demand for their equipment at attractive rates. The company has put sustainability at the heart of its strategy, working for example with suppliers on the next generation of equipment that will run on batteries rather than traditional fuels. Over the medium term we expect Ashtead to benefit from the structural trend of increased rental penetration and to win market share in what is a highly fragmented industry. Ashtead's scale and technology give it an advantage over small operators.

Highlighted Company: 3i Group

3i is a private equity investor. It owns companies that operate in four core sectors: Business and Technology Services, Consumer, Healthcare and Industrial Technology. The company targets investments which it believes can double in size over their holding period and has an excellent track record of achieving this goal. Its largest portfolio company is Action, a discount retailer, which is rapidly rolling out its stores across Europe. Action has been phenomenally successful, yet its expansion is still in its early stages. While many private equity companies have been doing bigger and more expensive deals, 3i has focused on smaller transaction and bolt on deals for existing portfolio companies. This acute focus on valuation should enhance returns over the long run. Current CEO, Simon Borrows, took over in 2012 and has consistently grown the value of the portfolio.

Environmental, Social and Governance Review

The Company holds stocks based on their fundamentals. We do not have an exclusion list of stocks or sectors. Rather we consider what ESG issues a company faces, whether company management is open to engagement and willing to address those issues and the risk the issues pose to the company's fundamentals. This analysis helps inform our investment decisions of whether to hold a stock and the size of our position.

For sectors which face significant ESG issues, for example the mining and oil & gas producer sectors, we do not exclude them entirely, in fact, some of our largest positions are in these sectors. As owners of these companies we are in a position to influence how they address these issues and to enforce accountability to targets that are set.

In last year's annual report we set out why we own mining companies despite some of the ESG issues that they face. Our view has not changed. However, with BHP leaving the index we may hold less in absolute terms in the mining sector going forward. We are pleased to see the mining companies build out further targets for emission reductions such as Anglo American targeting being net zero across their operations and reduce scope 3 emissions by 50% by 2040. We will engage with the companies to push them on near term delivery and be more ambitious over the long run.

We also discussed the energy sector. Our view that the market was under estimating the potential for demand rebound and had become overly myopic on energy transition is playing out. The cash generation at current oil prices facilitates significant capital returns to shareholders and funds investment in transition. Investment into traditional oil and gas projects has been significantly reduced over the last decade, which implies that supply will remain tight in the near term. Our engagements with the companies will focus on executing on their transition strategies and, ensuring they maintain discipline when allocating the significant capital they are accruing in the current commodity price environment. 

As part of our investment process, our team meets companies to scrutinise their strategy and operational performance. In the UK we have several hundred company meetings each year. These meetings are also an opportunity to engage with companies on ESG issues.

One of the engagements we had this year was with Marshalls, the building materials company. They published their first carbon emission numbers in 2004. This reflects sustainability being embedded in the culture and strategy of the business and we believe it gives them an advantage over peers. Firstly, client tenders now ask how much carbon is emitted in production of products and are looking for low carbon products. Marshalls have the right product and data to help their clients with these requests. Secondly, they have a small but growing concrete brick business. Concrete bricks are currently just 4% of the market but compared to clay bricks emit 28% less carbon during production and 49% over their lifetime as they are fully recyclable. They are also cheaper to produce. As housebuilders look to reduce the carbon footprint of their products it seems likely they will switch to concrete bricks that are not only lower carbon but cheaper. A company that is producing a product which is better for the environment and for their customers' margins than the alternative is well placed for long term sustainable growth. 

We sent letters to the Chairs of Shell and BP noting that we voted in support of their transition strategy but outlining a number of steps we believe the companies should take to enhance their strategies and increase the credibility of their response to climate change. For example, we suggested directly measuring and setting targets for methane emissions reductions. Our engagement with these energy companies on their climate strategies will be a persistent feature as the world transitions to net zero.

Market Outlook

Until very recently, we were observing some encouraging signs that many economies, such as the UK, were learning to live with the wretched pandemic and were at last beginning to enjoy the benefits of many Covid restrictions being lifted. Confidence was returning and economic activity was picking up.

However, the Russia-Ukraine conflict has challenged our optimism. Such a war in Europe is possibly the most important geo-political event in recent history and represents a very worrying and significant development. Currently, it is not clear how and when the conflict will end but an extended period of volatility across financial markets now appears likely.

As the price of oil and gas rockets, inflation (which was already becoming a concern) is likely to rise further still - possibly considerably so. Consumer spending and corporate profits have held up well thus far; however, rising inflation is likely to put a squeeze on both. Such an uncertain environment will no doubt create many stock picking opportunities since some companies will be better placed than others to deal with these new challenges. For the moment though, we maintain a cautious stance on both economies and markets which is reflected in our prudently-constructed portfolio which now has a much lower level of gearing than usual.

Amidst such uncertainty, we draw comfort from the historically low rating of the UK equity market, which looks very good value versus practically all other major equity markets. Indeed, UK stocks have held up better than most in the recent turmoil. We are pleased to report that your portfolio had minimal exposure to Russian-related stocks. The principal one was the steel producer, Evraz which thankfully we sold in its entirety before the invasion took place. The stock price has subsequently slumped.

Our consistent overweighting in the portfolio to both value and growth stocks should provide some buffer from both market volatility and style rotation but, as ever, individual stock selection in this very uncertain environment will be key to the portfolio's performance in what is clearly going to be a challenging year ahead.

At the time of writing, your fund has a net cash position of 1.3%,   (including the effect of any futures).

William Meadon

Callum Abbot

Investment Managers

11th March 2022

PRINCIPAL AND EMERGING RISKS

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including emerging risks, including those that would threaten its business model, future performance, solvency or liquidity and reputation.

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company, as well as emerging risks. The risk matrix, including emerging risks, are reviewed formally by the Board every six months or more regularly as appropriate. In assessing the risks and how they can be mitigated, the Board has given particular attention to those risks that might threaten the viability of the Company. These key risks fall broadly under the following categories and remain unchanged from the previous year:

Principal Risk	Description	Mitigating Activities
Cybercrime	Threat of cyber attack, in all its guises including threats from the work from home processes during the Covid-19 pandemic, is regarded as at least as important as more traditional physical threats to business continuity and security.	The Company benefits directly or indirectly from all elements of JPMorgan's cyber security programme. The Board reviews the cyber security precautions taken by its third party suppliers on a regular basis. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by independent reporting accountants and reported on every six months against the AAF 01/06 Standard.
External factors	Political (e.g. change in financial/tax legislation, onshore and offshore). Impact of Brexit on Company and portfolio.	The Board has considered, and continues to keep under review, the political, economic and regulatory risks to the Company associated with the UK's decision to leave the European Union and the trade negotiations completed in December 2020, including the effect on the business and economic environment in which the companies in the portfolio operate; the effect of volatility in sterling on the portfolio companies and the dividends received from them; possible changes in regulation affecting the listing and promotion of shares in UK companies, including the Company itself; and possible changes in direct and indirect taxes which may affect the Company's returns.
Share price discount	Share price lags the NAV by a significant level, resulting in lower returns to shareholders.	The Board seeks to manage the volatility and absolute level of the discount by judicious use of its share repurchase authority taking account of market conditions and having established explicit guidelines.
Investment and Strategy	Inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to underperformance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount.	The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported on by the Manager. JPMF provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Managers, who attend all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Investment Managers employ the Company's gearing within a strategic range set by the Board. The Board holds a separate meeting devoted to strategy each year.
Market	Market risk arises from uncertainty about the future prices of the Company's investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. The Company may use Index Futures to manage the effective level of gearing. Such instruments are also subject to fluctuations in value and may therefore result in gains or losses.	The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines, which are monitored and reported on by the Manager. The Board monitors the implementation and results of the investment process with the Manager.
Operational	Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the depositary's or custodian's records could prevent accurate reporting and monitoring of the Company's financial position.	Details of how the Board monitors the services provided by the Manager and its associates and the key elements designed to provide effective internal control are included within the Risk Management and Internal Control section of the Corporate Governance report on pages 42 and 44 of the Annual Report. The risk of fraud or other control failures or weaknesses within the Manager or other service providers could result in losses to the Company. The Audit Committee receives independently audited reports on the Manager's and other service providers' internal controls, as well as report from the Manager's Compliance function. The Company's management agreement obliges the Manager to report on the detection of fraud relating to the Company's investments and the Company is afforded protection through its various contracts with suppliers, of which one of the key protections is the Depositary's indemnification for loss or misappropriation of the Company's assets held in custody.
Loss of Investment Team	Loss of key staff by the Manager, such as the Investment Managers, could affect the performance of the Company.	The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team-based approach.
Climate change	Climate change has become one of the most critical issues confronting companies and their investors. Climate change can have a significant impact on the business models, sustainability and even viability of individual companies, whole sectors and even asset classes.	The Board receives ESG reports from the Manager on the portfolio and the way ESG considerations are integrated into the investment decision-making, so as to mitigate risk at the level of stock selection and portfolio construction. This includes the approach investee companies take to recognising and mitigating climate change risks. The Board is also considering the threat posed by the direct impact on climate change on the operations of the Manager and other major service providers. As extreme weather events become more common, the resiliency, business continuity planning and the location strategies of our services providers will come under greater scrutiny.
Legal and Regulatory/Corporate Governance	In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158').	Details of the Company's approval are given on page 25 of the Annual Report. Were the Company to breach Section 1158, it might lose investment trust status and, as a consequence, gains within the Company's portfolio could be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by the Manager and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act and, since its shares are listed on the London Stock Exchange, the FCA Listing Rules, Prospectus, Market Abuse Regulation and Disclosure Guidance & Transparency Rules ('DTRs'). A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the FCA Listing Rules or DTRs could result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary and its professional advisers to ensure compliance with the Companies Act and the FCA Listing Rules and DTRs. Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance report on pages 39 to 44 of the Annual Report .
Financial	Poor control of expenses can lead to an escalation of costs and high ongoing charges.	The Board monitors the expenses of the Company and is provided with detailed information. The financial risks arising from the Company's financial instruments include market price risk, interest rate risk, liquidity risk and credit risk. Further details are disclosed in note 22 on pages 76 to 80 of the Annual Report .
Emerging Risks
ESG requirements from Investors	The Company's policy on ESG and climate change may be out of line with ESG practices which investors are looking for in companies in which they invest.	The Manager fully integrates ESG factors into the Company's investment process. Further details are set out in the ESG report on pages 18 to 20 of the Annual Report. The Board will keep under review the wider market requirements for ESG investing; however, as the Company seeks to increase the dividend each year there is currently a significant percentage of the portfolio in commodities/energy stocks.
Geopolitical	There is an increasing risk to market stability and investment opportunities from geo-political conflicts, such as between Russia and the Ukraine, South and North Korea, and China and Taiwan.	There is little direct control of risk possible. The Company addresses these global developments in regular questioning of the Manager and with external expertise and will continue to monitor these issues. The Board can with shareholder approval look to amend the investment policy and objectives of the Company to reduce exposure to or mitigate the risks arising from geopolitical concerns.
Inflation and interest rates	Government/Central Bank fiscal/monetary response to COVID-19 may result in significant levels of inflation affecting economic growth directly or valuation levels and a subsequent increase in interest rates.	Little control of risk possible.  The Board can with shareholder approval look to amend the investment policy and objectives of the Company, if required, to enable investment in companies which are not impacted by inflation risks.

Transactions with the Manager and related parties

Details of the management contract are set out in the Directors' Report on page 37 of the Annual Report. The management fee payable to the Manager for the year was £2,206,000 (2020: £1,878,000) of which £nil (2020: £nil) was outstanding at the year end.

During the year nil (2020: £95,000), including VAT, was payable to the Manager for the administration of savings scheme products, of which £nil (2020: £nil) was outstanding at the year end.

Included in administration expenses in note 6 on page 69 of the Annual Report are safe custody fees amounting to £11,000 (2020: £6,000) payable to JPMorgan Chase Bank N.A. of which £3,000 (2020: £1,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities Limited for the year was £19,000 (2020: £2,000) of which £nil (2020: £nil) was outstanding at the year end.

The Company holds an investment in JPMorgan UK Smaller Companies Investment Trust plc which is managed by JPMorgan. At the year end this was valued at £20.4 million (2020: £26.8 million) and represented 3.7% (2020: 6.0%) of the Company's investment portfolio. During the year the Company made £nil (2020: £nil) purchases of this investment and sales with a total value of £8,940,000 (2020: £517,000). Dividend income amounting to £292,000 (2020: £410,000) was receivable during the year of which £nil (2020: £nil) was outstanding at the year end.

The Company also holds cash in the JPMorgan Sterling Liquidity Fund, which is managed by JPMorgan. At the year end this was valued at £4.7 million (2020: £25.0 million). Interest amounting to £6,000 (2020: £32,000) was receivable during the year of which £nil (2020: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £6,000 (2020: £6,000) were payable to JPMorgan Chase Bank N.A. during the year of which £2,000 (2020: £1,000) was outstanding at the year end.

At the year end, total cash of £2,188,000 (2020: £250,000) was held with JPMorgan Chase Bank N.A.. A net amount of interest of £nil (2020: £24,000) was receivable by the Company during the year from JPMorgan Chase Bank N.A. of which £nil (2020: £nil) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found on page 49 and in note 6 on page 69 of the Annual Report .

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report and financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', and applicable law).

Under company law, directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing the financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• state whether applicable United Kingdom Accounting Standards, comprising FRS 102 have been followed, subject to any material departures disclosed and explained in the financial statements;

• make judgements and accounting estimates that are reasonable and prudent; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The Directors are responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.

The Directors are responsible for the maintenance and integrity of the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The accounts are published on the www.jpmclaverhouse.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

The Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces.

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report and Directors' Remuneration Report that comply with that law and those regulations.

Each of the directors, whose names and functions are listed on page 36 of the Annual Report confirm that, to the best of their knowledge:

• the company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 102, give a true and fair view of the assets, liabilities, financial position and result of the company; and

• the Strategic Report and Directors' Report includes a fair review of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties that it faces.

The Board confirms that it is satisfied that the annual report and accounts taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the performance, business model and strategy of the Company.

For and on behalf of the Board
Andrew Sutch
Chairman

11th March 2022

Statement of Comprehensive income

for the year ended 31st December 2021

	2021			2020
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments and derivatives held at fair value through profit or loss	-	67,191	67,191	-	(58,442)	(58,442)
Net foreign currency losses	-	(4)	(4)	-	(41)	(41)
Income from investments	20,224	-	20,224	15,391	-	15,391
Interest receivable and similar income	6	-	6	56	-	56
Gross return/(loss)	20,230	67,187	87,417	15,447	(58,483)	(43,036)
Management fee	(772)	(1,434)	(2,206)	(657)	(1,221)	(1,878)
Other administrative expenses	(668)	-	(668)	(711)	-	(711)
Net return/(loss) before finance costs and taxation	18,790	65,753	84,543	14,079	(59,704)	(45,625)
Finance costs	(589)	(1,094)	(1,683)	(617)	(1,148)	(1,765)
Net return/(loss) before taxation	18,201	64,659	82,860	13,462	(60,852)	(47,390)
Taxation (charge)/write back	(99)	-	(99)	3	-	3
Net return/(loss) after taxation	18,102	64,659	82,761	13,465	(60,852)	(47,387)
Return/(loss) per share	30.77p	109.92p	140.69p	23.20p	(104.85)p	(81.65)p
Dividends declared and payable in respect of the year	30.50p			29.50p
Dividends paid during the year	31.00p			29.75p

statement of changes in equity

for the year ended 31st December 2021

	Called up	Share	Capital			Total
	share	premium	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserves	reserve1	funds
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st December 2019	14,218	156,267	6,680	245,512	25,417	448,094
Issuance of the Company's shares from Treasury	-	59	-	744	-	803
Issue of ordinary shares	433	9,052	-	-	-	9,485
Repurchase of the shares into Treasury	-	-	-	(921)	-	(921)
Net (loss)/return	-	-	-	(60,852)	13,465	(47,387)
Dividends paid in the year	-	-	-	-	(17,215)	(17,215)
At 31st December 2020	14,651	165,378	6,680	184,483	21,667	392,859
Issuance of the Company's shares from Treasury	-	412	-	3,247	-	3,659
Issue of ordinary shares	208	6,073	-	-	-	6,281
Repurchase of the shares into Treasury	-	-	-	(2,329)	-	(2,329)
Net return	-	-	-	64,659	18,102	82,761
Dividends paid in the year	-	-	-	-	(18,209)	(18,209)
At 31st December 2021	14,859	171,863	6,680	250,060	21,560	465,022

¹   This reserve is distributable. The amount that is distributable is not necessarily the full amount as disclosed in these financial statements of £21,560,000 as at 31st December 2021. This reserve may be used to fund distributions to shareholders.

statement of financial position

at 31st December 2021

	2021	2020
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	553,180	447,117
Current assets
Debtors	1,403	847
Cash held at broker	4,969	-
Cash and cash equivalents	6,886	25,283
	13,258	26,130
Current liabilities
Creditors: amounts falling due within one year	(70,480)	(50,388)
Derivative financial liabilities	(936)
Net current liabilities	(58,158)	(24,258)
Total assets less current liabilities	495,022	422,859
Creditors: amounts falling due after more than one year	(30,000)	(30,000)
Net assets	465,022	392,859
Capital and reserves
Called up share capital	14,859	14,651
Share premium account	171,863	165,378
Capital redemption reserve	6,680	6,680
Capital reserves	250,060	184,483
Revenue reserve	21,560	21,667
Total shareholders' funds	465,022	392,859
Net asset value per share	782.4p	672.1 p

statement of cash flows

for the year ended 31st December 2021

	2021	2020
	£'000	£'000
Net cash outflow from operations before dividends and interest	(2,888)	(2,619)
Dividends received	19,322	15,666
Interest received	6	56
Overseas tax recovered	-	64
Interest paid	(1,587)	(2,081)
Net cash inflow from operating activities	14,853	11,086
Purchases of investments	(191,662)	(297,664)
Sales of investments	156,615	279,858
Settlement of forward currency contracts	(1)	(3)
Settlement of futures contracts	(2,635)	29
Transfer of company cash to be held at the broker	(4,969)	-
Net cash outflow from investing activities	(42,652)	(17,780)
Dividends paid	(18,209)	(17,215)
Issuance of the Company's shares from Treasury	3,659	1,188
Repurchase of the Company's shares into Treasury	(2,329)	(921)
Issue of Ordinary shares	6,281	9,485
Repayment of bank loans and debenture	(25,000)	(69,986)
Drawdown of Private Placement loan and bank loan	45,000	90,000
Net cash inflow from financing activities	9,402	12,551
(Decrease)/increase in cash and cash equivalents	(18,397)	5,857
Cash and cash equivalents at start of year	25,283	19,429
Exchange movements	-	(3)
Cash and cash equivalents at end of year	6,886	25,283
(Decrease)/increase in cash and cash equivalents	(18,397)	5,857
Cash and cash equivalents consist of:
Cash and short term deposits	2,188	250
Cash held in JPMorgan Sterling Liquidity Fund	4,698	25,033
Total	6,886	25,283

Notes to the financial statements

for the year ended 31st December 2021

1.  Accounting policies

  Basis of accounting

The financial statements are prepared under historical cost convention, modified to include fixed asset investments and derivatives at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in April 2021.

All of the Company's operations are of a continuing nature.

The financial statements have been prepared on a going concern basis. In making their assessment, the Directors have reviewed income and expense projections and the liquidity of the investment portfolio, and considered the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience. The disclosures on going concern on pages 43 of the Directors' Report of the Annual Report form part of these financial statements.

The policies applied in these financial statements are consistent with those applied in the preceding year.

2.  Return/(loss) per share

		2021	2020
		£'000	£'000
	Revenue return	18,102	13,465
	Capital return/(loss)	64,659	(60,852)
	Total return/(loss)	82,761	(47,387)
	Weighted average number of shares in issue during the year	58,822,971	58,034,746
	Revenue return per share	30.77p	23.20p
	Capital return/(loss) per share	109.92p	(104.85)p
	Total return/(loss) per share	140.69p	(81.65)p

3.  Dividends

  Dividends paid and declared

		2021	2020
		£'000	£'000
	Dividends paid
	2020 fourth quarterly dividend of 10.00p (2019: 10.25p) paid in March 2021	5,826	5,829
	First quarterly dividend of 7.00p (2020: 6.50p) paid in June 2021	4,083	3,768
	Second quarterly dividend of 7.00p (2020: 6.50p) paid in September 2021	4,150	3,809
	Third quarterly dividend of 7.00p (2020: 6.50p) paid in December 2021	4,150	3,809
	Total dividends paid in the year of 31.00p (2020: 29.75p)	18,209	17,215
	Dividend declared
	Fourth quarterly dividend declared of 9.50p (2020: 10.00p) paid in March 2022	5,646	5,845

All dividends paid and declared in the period have been funded from the Revenue Reserve.

The fourth quarterly dividend has been declared and paid in respect of the year ended 31st December 2021. This dividend will be reflected in the financial statements for the year ending 31st December 2022.

4.  Net asset value per share

		2021	2020
	Net assets (£'000)	465,022	392,859
	Number of shares in issue (excluding shares held in Treasury)	59,435,653	58,449,363
	Net asset value per share	782.4p	672.1p

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

JPMORGAN FUNDS LIMITED 

 11th March 2022

  For further information, please contact:

  Nira Mistry

  For and on behalf of

  JPMorgan Funds Limited

  020 7742 4000

ENDS

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

The annual report will shortly be available on the Company's website at www.jpmclaverhouse.co.uk   where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN FUNDS LIMITED

 

END

 

 

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