Change to Risk Management Limits

JPMorgan Claverhouse IT PLC

11 June 2021

Change to Risk Management Limits

The Company invests a diversified portfolio seeking capital and income growth from UK companies.  It has a strong dividend track record, with 48 consecutive years of dividend growth. Investment Managers, William Meadon and Callum Abbot, follow an active, best ideas approach to constructing a diversified portfolio which consists typically of between 60 and 80 investments.

As disclosed in the Company's Annual Report, the Board has previously agreed certain guidelines with the Investment Managers to seek to manage risk relative to the Company's benchmark index by limiting the active portfolio exposure to individual sectors and stocks.

Over time, the current risk limits have increasingly impacted the Investment Managers' ability to invest in their best ideas. This has become particularly acute following the changes in March 2021 to the industry classification benchmark. Stocks that were previously spread across a number of sectors moved into a new sector. As a result, whilst the portfolio positioning had not changed, the positions were close to breaching sector limits.

Following a review, the Board has concluded that the Investment Managers' active approach is a key feature of the Company, and that risk can be managed effectively at a portfolio level. It therefore has agreed to amend certain of the risk limits, bringing the Company in-line with internal and external peers:

·    Stock limits for overweight positions will remain unchanged. However, the Investment Managers will be permitted to operate a "do not like do not hold" approach for underweight positions (previously limited to -3%). This is expected to affect only a small number of stocks. The significant majority of the c.600 stocks in the FTSE All Share Index have small index weights; therefore the Investment Managers' ability to have large underweight positions is limited to their small index weight. There are currently nine stocks with an index weight over 2% and five stocks with an index weight over 3%. The risk implications of any large underweight will always be considered within the context of the broader portfolio; and

·    Sector exposures will in future deviate from any index weighting by a maximum of 10% (previously limited to +/-5%). In the Investment Managers' view, risks such as macro or theme risk can be managed at the portfolio level and therefore whilst the current sector risk limits do not add to risk mitigation they do restrict the Investment Managers' ability to invest in their best ideas.

A comparison of the existing risk guidelines and the new guidelines are set out in the Appendix, below.

Katie Standley   0207 134 6220  

Nira Mistry          0207 742 4000

JPMorgan Funds Limited

Company Secretary

APPENDIX

Comparison of risk guidelines