UK Edition
It is impossible to accurately time the stock market. Since its short-term performance is random, no investor can realistically expect to consistently find the perfect moment to buy or sell shares.
However, the cyclical nature of equity markets and the economy means there are certain periods when buying shares is particularly attractive.
In Questor’s view, one of those eras is currently in existence as a result of rampant inflation, rapidly rising interest rates and sluggish economic growth.
They are combining to cause downbeat investor sentiment that provides opportunities to purchase high-quality companies at extremely attractive prices.
For example, the JPMorgan Claverhouse investment trust has a 5.2pc dividend yield and has raised shareholder payouts at an annualised rate of 5.8pc over the past decade.
Moreover, it has increased dividends per share for 50 consecutive years. It is the only investment trust that invests solely in UK equities to have done so.
As a result, income investors should be queuing up to purchase the trust. At any period in the stock market’s long history, a 5pc+ yield and an excellent track record of dividend growth would most likely be viewed as a “no-brainer” purchase by almost all income-seeking investors.
Yet, the trust currently trades at a 6pc discount to net asset value (NAV). Worse still, many investors are apparently selling shares and flocking to fixed-rate bonds to obtain a similar yield but without any scope for long-term income growth or capital returns.
Certainly, the company’s shares could move lower in the short run.
Interest rates are set to rise yet further in an attempt to moderate sticky inflation. This could harm a UK economy that is already flirting with recession and turn weak investor sentiment into comprehensive disillusionment towards equity markets.
But, over the long run, history shows that the status quo will inevitably change.
Ultimately, interest rate rises will abate, inflation will fall, the economy will return to its long‑term average growth rate and investors will adopt a risk-on attitude.
The end result, at some point in future, is very likely to be significantly higher share prices than those found today.
The JPMorgan Claverhouse investment trust typically holds 60-80 UK-listed companies in a portfolio that is dominated by large-cap stocks.
About 75pc of its net assets by value are companies with market capitalisations in excess of £10bn, with its largest holdings being household names such as AstraZeneca, Shell and HSBC.
As a result, it offers a reduced level of risk vis-à-vis many other UK-focused trusts that invest a greater proportion of their net assets in mid and small-cap stocks. After all, larger companies tend to have stronger balance sheets and more diverse operations than their smaller peers.
A gearing ratio of about 5pc, when combined with an uncertain economic outlook, means the company’s shares could be relatively volatile over the short run.
However, over the long run, a modest level of debt is likely to provide a welcome boost to returns as the performance of UK-listed equities significantly improves.
In terms of strategy, the company uses a bottom-up approach to select high-quality stocks that it believes trade at attractive prices. It is not particularly influenced by the prevailing economic or geopolitical events of the day.
Alongside its enviable dividend track record, the trust has marginally outperformed its benchmark, the FTSE All-Share Index, over the past decade. It has generated an annualised capital return of 5.88pc versus 5.26pc for the index.
Although its 15pc capital gain since being added to our income portfolio in April 2020 lags the FTSE 100’s 27pc return over the same period, it deserves far more time to deliver index-beating performance.
Indeed, the trust’s long-term return prospects are now arguably more attractive than when it was initially added to our income portfolio.
After all, it trades at a discount, rather than a small premium, to NAV. And with its long-standing dividend growth track record having been maintained, as well as its dividend yield being above 5pc, it offers a generous and reliable income investing opportunity.
The company, as well as the wider stock market, may not presently be popular among investors. In Questor’s view, this makes it all the more appealing ahead of the stock market cycle’s transition to a more bullish phase over the coming years.
Questor says: HOLD
Ticker: JCH
Share price at close: 634p
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