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Trust Insider: a good multi-asset fund hidden behind its moving parts
by James Carthew on Feb 04, 2014 at 07:00
The other day I saw that Neil Nuttall is to leave JP Morgan. Since 2010 Nuttall was co-manager (with Sarah Emly and John Baker) of JP Morgan Income & Growth (JPMIG ), and during his tenure the fund has generated reasonable performance.
The news spurred me to look at JPMIG, which is one of a dwindling number of split capital investment trusts.
JPMIG, which was launched in December 2006, had a difficult start. The market had a good run for the next few months but after a wobble in summer 2007, hit a peak in October then fell sharply as the credit crunch took hold. It was 2013 before the market regained December 2006 levels.
JPMIG has two classes of shares, income and capital. Its gearing is provided by bank debt (rather than zero dividend preference shares, a typical component of other split capital investment trusts).
The company has a fixed life and will be wound up on 30 November 2016, when the income shares get 103.4 pence per share plus any undistributed income. The capital shares get whatever is left over.
Because of the sharp fall in markets, the capital share net asset value (NAV) was underwater between 2008 and late 2013. The price of the capital shares fell from 50p to less than 5p during the crisis.
Over the past year however, as the asset value of the trust has recovered, the capital share price has doubled. The capital shares trade on a substantial premium to their asset value however as investors gamble that markets will continue to rise between now and November 2016. Essentially, the capital shares are priced like warrants.
Now the capital entitlement is fully covered, all future return from the income shares will come from dividends. Investors must remember, though there is a risk if markets fall between now and the end of the fund’s life, their final payment could fall short of the 103.4 pence target.
The yield on the income shares is 4.6% today. The dividend had to be cut during the crisis, falling from 6.2p in the year ended 31 January 2009 to 4p the following year. In spring 2012 the board felt able to start increasing the dividend again and it is currently running at an annualised rate of 4.4p (the dividends are paid quarterly).
Still building reserves
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