Scottish Mortgage has been singled out as one of the top holdings helping the JP Morgan Claverhouse trust turn performance around over the second quarter as it recovered from the devastating impact of the Covid sell-off.
The £448.9m trust revealed it had lagged its benchmark the FTSE All Share by 4.8% during the first six months of the year, falling 22.3% over the period.
All of its declines occurred in the first three months to 31 March when the trust plunged 33.2%. The FTSE All Share was down 25.1% over the same time frame, while the IT UK Equity Income sector was down 30.1%.
But by the end of the second quarter the trust had rebounded and was up 13.4%, outperforming its benchmark by 3.2%.
Portfolio managers William Meadon and Callum Abbot admitted they had been “wrong-footed” by the outbreak of the coronavirus pandemic due to the £448.9m trust’s high levels of gearing and cyclical positioning.
“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 pair wrote in the trust’s half year report.
“The portfolio was cyclically biased and had gearing by mid-January of some 14%. The portfolio was therefore wrong-footed by the outbreak of the unexpected global pandemic from Covid-19.”
Scottish Mortgage a bright spot amid market turmoil
But Meadon and Abbott identified Scottish Mortgage as one of the few portfolio holdings that had “fared well” despite the “roller coaster ride” over the first half of the year amid the coronavirus outbreak.
James Anderson’s £13bn trust was the biggest gainer, with shares spiking over 42% over the period, contributing 0.5% to performance overall.
The managers said the tech heavy trust, which accounts for 1.1% of the portfolio, benefited as many of its holdings like Amazon were able to continue operations during the lockdown period.
The biggest contributor to performance in the first half was Games Workshop which added 0.7% to Claverhouse’s returns. Despite being forced to close all its physical shops during lockdown the FTSE 250 firm saw online sales of its table top games soar, which boosted shares by 32%.
Holdings in Astrazeneca and Glaxosmithkline were also highlighted as positive contributors.
By the end of the first quarter Meadon and Abbott said they had swiftly restructured the portfolio toward more resilient companies like pharmaceuticals and capital-light tech businesses like Avast and Softcat and boosted holdings in defensives sectors like utilities. The pair also reduced the level of gearing in the trust from 14% by mid-January to “very low levels”.
Claverhouse ditches casino operator and National Express
The trust’s holding in the JP Morgan Smaller Companies investment trust was the biggest hindrance to performance. In the last six months its discount has widened from 1% to 15% as investors shunned smaller, domestic names.
Meadon and Abbott sold out of casino operator Rank and coach company National Express on the basis that “neither was well placed for an economy moving into lockdown”.
Despite the pickup in performance in Q2 Meadon and Abott said “Claverhouse will continue to tread carefully”.
“Our core philosophy of investing in quality, reasonably priced companies with growth prospects should continue to stand the portfolio in good stead and help us navigate these unchartered waters to our shareholders’ benefit,” they said.
As at 30 June Claverhouse is trading at a 5.0% discount.
