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JPMorgan Claverhouse Investment Trust

JPMorgan Claverhouse Investment Trust. AGM Presentation. William Meadon – new co-fund manager. Head of UK equities 25 years industry experience Qualified chartered accountant New co- fund manager Specific responsibility for gearing. … focused on improving performance.

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JPMorgan Claverhouse Investment Trust

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  1. JPMorgan Claverhouse Investment Trust AGM Presentation

  2. William Meadon – new co-fund manager • Head of UK equities • 25 years industry experience • Qualified chartered accountant • New co- fund manager • Specific responsibility for gearing … focused on improving performance

  3. JPM Claverhouse Investment Trust highlights • Objective • Capital and income growth from UK investments • Launched in 1963, named after Viscount Claverhouse • Claverhouse portfolio value of c.£300m • Current gearing c.13% • Dividend increased for 39 consecutive years (+4.3% from 17.50p to 18.25p in 2011) • Claverhouse shares currently yield 4.4%, dividends paid quarterly

  4. Agenda • New strategy for Claverhouse • Performance review of 2011 • Current portfolio positioning • Market outlook

  5. Claverhouse... a new approach • A more focused portfolio (60 – 80 stocks) • - more conviction • More fundamentally driven stock picking • Value and momentum • Tactical use of gearing • £30m debenture = 11% gearing • £15m loan facility to give +/- 5% tactical gearing …a structurally geared, focused UK Investment Trust

  6. Agenda • New strategy for Claverhouse • Performance review of 2011 • Current portfolio positioning • Market outlook

  7. Performance in 2011 Total return performance • NAV Total Return: -7.6% • Share Price Total Return: -7.9% • FTSE All Share Total Return: -3.5% • Dividend increased from 17.5p to 18.25p % Source: Datastream/JPMAM. Serieshave been rebased to 100 at 31 December 2010. Data to 31 December 2011. NAV returns are net of fees. ... 2011 – a more challenging year, negative absolute and relative returns

  8. Performance in 2011 – attribution Analysis of relative return • 2011 a challenging year for active managers – the Claverhouse portfolio underperformed the volatile market, struggling in the second half. • Gearing into the volatile and declining market detracted from performance, in contrast to 2010. • Underlying equity portfolio has outperformed by 0.4% p.a. over 10 years. Source: JPM Claverhouse Annual Report, 2009 Source: JPMAM JPMorgan Claverhouse Annual Report. ... underperformance in 2011, disappointing after strong performance in 2010

  9. 12 month performance to 31 December 2011 – attribution Major stock and sector contributors to returns Top 5 / bottom 5 stock positions Top 5 / bottom 5 sector positions Source: JPMAM, Factset.

  10. Performance – Q1 2012 update 3 months to 31 March 2012, total return performance % Source: Datastream/JPMAM. Serieshave been rebased to 100 at 31 December 2011. NAV returns are net of fees. Figures in the legend are sourced from JPMAM (provisional returns). ... an encouraging start to 2012 with positive absolute and relative returns

  11. Agenda • New strategy for Claverhouse • Performance review of 2011 • Current portfolio positioning • Market outlook

  12. Claverhouse Portfolio • Conviction stock ideas, with between 60-80 direct stock holdings • We have reduced the tail of smaller stock positions, and now have more stock positions above 50bps • Continue to look for value and momentum stock ideas, using dividend yield as an additional valuation tool • Fundamental stock selection, hand-constructed portfolio • Claverhouse portfolio will typically have a premium dividend yield – currently c.1% dividend yield premium, at 4.1% ... early implementation of new strategy for Claverhouse

  13. Changes since introduction of the new strategy Greater conviction stock ideas • Recent Disposals • Tesco • SABMiller • Rank • No longer compelling Recent Purchases • ITV • WPP • Rexam • Favoured stocks ... currently 74 direct stock holdings

  14. Stock example: ITV Plc • The leading UK commercial TV broadcaster; had a change of management in 2010 (new CEO, Adam Crozier) • New management team has focused on driving cost control and strengthening the balance sheet (now have positive net cash) • Bought ITV in January 2012, as earnings outlook improved; since added to the position as the newsflow has improved further, benefiting from positive trends in net advertising revenue and more cost cutting • Consistent upgrades to earnings estimates and the company recently reintroduced a dividend Relative Price vs. FTSE AllShare Source: Datastream. Rebased to 100 as at 31/12/08 Data to 31/03/12. Returns are in GBP. ... a favoured positive newsflow stock idea

  15. Stock example: Taylor Wimpey • Top three UK housebuilder, having restructured and sold off its North American business in 2011 • Now a UK focused housebuilder, trading at one of the cheapest valuations in the sector, at just 0.7x tangible book value • Management has focused on cost-cutting and improving its financial position since 2009 housing market crisis • Recent newsflow has been positive, with company experiencing a solid start to the new year, improving margins and higher average selling price guidance Relative Price vs. FTSE AllShare Source: Datastream. Rebased to 100 as at 31/12/08 Data to 31/03/12. Returns are in GBP. ... a value opportunity which we have recently increased

  16. 2012 to date has seen an improvement in some UK companies’ earnings prospects post the trials of second half of 2011 There are still plenty of value opportunities, including amongst some of the larger UK companies, with attractive dividend yields and growing dividends Stock positions As at 31 March 2012 Source: JPMAM ... investing in value and momentum opportunities

  17. Sector positions As at 31 March 2012 Active weightings, relative to FTSE All-Share (%) Source: JPMAM ... positions a result of stock selection decisions

  18. Agenda • New strategy for Claverhouse • Performance review of 2011 • Current portfolio positioning • Market outlook

  19. Gearing Influences (6 month view) Martin Porter Head of Global Equities and Multi Assets David Shairp Global Strategist (neutral) (mildly positive) Stephen Macklow-Smith European Gearing Committee Gearing Bottom Up Research/ Company meetings (neutral) (positive/neutral) Portfolio

  20. UK equity market valuation FTSE All Share prospective price/earnings ratio (x) Average = 13.0x Source: UBS. Data March 2012. ... 20% below long term average

  21. World Markets 2012 Dividend Yield (%) 2012 Price Earnings (x) Source: UBS Source: UBS ... UK market relatively good value

  22. 20 Average 10 year real total return (% per annum) 18 1974 16 1979 1976 14 1981 1983 1982 1978 12 1977 1990 1980 1988 1989 1987 1975 10 1985 1984 1986 1991 8 6 1995 1996 1994 1973 4 1992 1997 1993 2 2001 2000 1970 0 1999 1972 1998 -2 1971 -4 Starting Period PER (X) -6 4 6 8 10 12 14 16 18 20 22 24 26 28 Buying equities cheaply key to future returns • Historically the lower the price paid for equities, the better the returns over the next 10 years • At today’s price, history suggests 10%+ returns per annum for the next decade Source: Oriel … history suggests the current prospects for equity returns are very positive

  23. International nature of the UK equity market UK market geographical revenue split Source: HSBC ... UK equity market gives international exposure

  24. Eurozone...a sleeping crisis? Spanish 10yr bond yields (%) • A half constructed political and currency union • A massive economic experiment • Fundamental problems have not yet been resolved • Losers (periphery) may cause contagion throughout the region • Spain and Italy are particular worries Source: Bloomberg ... Spain is a real worry

  25. Conclusion • Long term performance is still ahead of index, but short term performance needs to improve • Fund will have more conviction in our best ideas • Stock selection will be supplemented by structural and more tactical use of gearing • Claverhouse shares have an attractive yield and its dividend has grown for 39 consecutive years • New year has started encouragingly ... focused on delivering performance

  26. J.P. Morgan Asset Management Any forecasts or opinions expressed are J.P. Morgan’s own at the date of this document and may be subject to change. The value of investments and the income from them may fluctuate and your investment is not guaranteed and investors may not get back the full amount invested. Past performance is not a guide to future performance. Exchange rates may cause the value of underlying overseas investments to go down or up. Investments in smaller companies may involve a higher degree of risk as they are usually more sensitive to market movements. Investments in emerging markets may be more volatile than other markets and the risk to your capital is therefore greater. Also, the economic and political situations may be more volatile than in established economies and these may adversely influence the value of investments made. Telephone lines are recorded and may be monitored for security and training purposes

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