Claverhouse: May’s loss could be stock market’s gain

A ‘compromised’ minority government could prove beneficial to UK companies and support equities, according to JPMorgan Claverhouse (JCH) manager William Meadon.

In its half-year results the UK equity income investment trust noted that Brexit had weighed heavily but global growth meant companies with international earnings had performed well.

It reported a net asset value (NAV) total return of 6.8% for the six months to 31 June, against a return of 5.5% from its FTSE All-Share benchmark. The trust currently trades on a 9% discount. 

Meadon said the uncertainty around the EU referendum and the ‘ticking Brexit clock’ had filtered through to business and consumer confidence and warned the UK faced a ‘more uncertain’ economic outlook for the second half of the year.

However, he argued that despite the ill-judged general election leading to the government losing its majority and prime minister Theresa May holding on to her position ‘by a thread’, it could benefit business.

‘At least two good things should come out of a compromised minority government: firstly the likelihood of a more business-friendly Brexit and secondly, against such an uncertain backdrop, the likelihood of interest rates staying lower for even longer,’ said Meadon.

He said these factors would ‘provide some support for equities’ and if sterling continued to weaken it would ‘at the margin’ be beneficial to overseas earners and exporters.

‘Moreover, global growth is accelerating and equities are also a better hedge than bonds or cash against the UK’s rising inflation,’ Meadon added.

Runners and riders

High-end mixer drinks producer Fever-Tree (FEVR) was the fund’s best performer again, thanks to the share price rising another 50% over six months.

‘This remarkable company which employs only 50 people now has a market capitalisation of almost £2 billion as global demand for is suite of mixers continues to significantly beat expectations,’ said Meadon.

Sportswear retailer JD Sports (JD) also performed ‘extremely well’ and the trust took a ‘small amount of profit’.

The trust’s position in Unilever (ULVR) also provided a boost after the failed bid from Kraft Heinz (KHC.O).

‘The failed takeover attempt spurred the company into implementing a number of shareholder-friendly changes to its strategy, which has pushed Unilever’s share price to all-time highs,’ said Meadon.

Meadon (pictured) added two new holdings in specialist construction group Morgan Sindall (MGNS) and bank note printer De la Rue (DLAR).

Pharmaceutical and oil stocks performed poorly in the first half of the year and Meadon has reduced his weightings in both sectors.

Stocks cut from the portfolio over the six months included artificial hip and joint maker Smith & Nephew (SN), water and waste services group United Utilities (UU), and Domino’s Pizza (DOM), as ‘the trading prospects of each of them had deteriorated’.

The trust paid a first quarter dividend of 5.5p in June, up from 5p the year before and reported an increase in income from investments during the first half of the year, keeping the trust on track to notch up 44 years of consecutive dividend increases. 

However, Meadon said the outlook for UK dividend growth was ‘mixed, with recent headline dividend growth flattered by the weakness of sterling over the last 12 months’.

‘This has enhanced the sterling value of dividends from some of the globally-orientated large cap stocks which declare their dividend in US dollars,’ he said.

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