Building a successful advisory team alongside a brand synonymous with active fund success is never easy, particularly within a boutique structure.
Jupiter Asset Management has run it Private Clients & Charities division since the firm’s formation in 1985, though it expanded with a number of key hires in 2007 to 2009, culminating in a restructure with its 13-strong team charged with individually looking at different asset classes.
Talent hunting
Now with some £1.8bn under management, and working alongside John Chatfeild-Roberts’ £7bn Merlin fund of funds team, the private client team certainly has some muscle in getting access to fund managers. And, says private client director David Blake, the emphasis is on seeking out individual talent and finding the best active managers – preferably with a long-term history of outperformance, rather than investing in direct stocks or relying on passives or structured products.
“We follow the fund manager more than the fund itself and we stick with managers,” he says.
“The important thing is that, while we do undertake quantitative analysis, we also need qualitative analysis to understand how the manager invests, why they invest and what style they have – because their style is not going to suit every market environment.”
Fund buy list
Each manager is tasked with looking after different asset classes (Blake’s area of expertise is fixed income) with a fund buy list compiled and discussed through weekly meetings.
Funds on the buy list are categorised under the ‘buy’, ‘sell’ or ‘hold’ logic, with generally around three buys, three holds and one or two sells in each investment area.
The exception is the home market, particularly UK equity income where the list of buys currently stretches to eight, including established favourites such as Neil Woodford at Invesco Perpetual and Nigel Thomas at Axa Framlington.
“At the back end of last year we increased exposure to Nigel Thomas in the Axa Framlington UK Select Opportunities because of his FTSE 250 orientation,” Blake explains.
“We were not hugely convinced by the market rally because it was based on the big liquidity drive from the LTRO.
“Rather than an outright increase in equity, we switched from a large to a mid and small-cap bias in order to catch more alpha on the upside. We also increased our exposure in the Old Mutual UK Select Mid Cap Fund.”
Bespoke portfolios
This equity income theme also extends globally through the likes of Veritas Global Equity Income and Newton Asian Income.
The team works across seven model portfolios, ranging from the most aggressive growth portfolio through to defensive and income options. However, all client portfolios are bespoke to take into account individual tax allowances.
In common with many of its peers, Jupiter puts capital preservation at the centre of its investment process across the models.
“We tend to outperform in down markets and underperform in up markets, but over the longer term that tends to work out much better,” adds Blake.
Absolute return funds have gained much traction in the retail market in recent years, though Blake says he approaches this area with caution, especially long/short strategies.
However, Standard Life’s popular Global Absolute Return Strategies (GARS) Fund is on the buy list, as well as the Jupiter Absolute Return Fund, run by Philip Gibbs.
Pedestrian returns
“The problem with long/short is that managers take a short position and then hold some of the margins in cash; before they were getting 6% to 7% in cash but now they are being paid nothing,” Blake explains.
“A lot of the returns from hedge funds have been pretty pedestrian and because of that some of the funds have been pushed to make bigger calls to generate more alpha.
“With the way markets have behaved in the past two years, if you get that just slightly wrong then you get hammered. Many were too short duration in fixed interest – a lot of big macro managers fell foul of that.”
Within fixed interest, the team has taken a more defensive stance lately, though the preference is for index-linked rather than sovereign debt.
“We bought index-linked quite early on in 2011 with the view that the liquidity that is being pumped into global markets – in the UK, and the US and latterly by ECB – is being shored up with the banks. There is huge money supply but no velocity of money, because banks have been told to increase their capital ratios.
“Once we do get some growth, money will start moving around the system and then we will get some inflation.
“Central banks will combat that by raising rates, but they can only increase interest rates to a certain level, beyond which mortgage rates will become too expensive and it will kill the housing market, so we will be back to square one. Therefore they are limited, and in the longer term, inflation will increase.”
Rifle-shooting funds
In terms of corporate bond exposure, the team made a decision to sell out of Invesco Perpetual’s bond funds in August last year because of the fund managers’ high weighting to financials and Italian government debt.
However, Blake has not ruled out buying back in at some point given the Invesco team’s strong long-term track record.
Other names held in the models include funds from the likes of M&G and Kames, as well as Jupiter Strategic Bond Fund. Jupiter’s own funds make up a fair proportion of the buy list, though Blake stresses that fees are waved so there is no double-charging for clients.
In riskier asset classes, emerging market exposure fund picks differ across the models. For example, in the more aggressive growth model, the preference is to “rifle shoot” individual country funds preferred, such as Jupiter’s own China and India funds.
Broader plays, such as First State Asia Pacific Leaders or Findlay Park Latin America, are used across other models.
For commodities exposure, funds such as BlackRock Gold & General, JPM Natural Resources and Guinness Global Energy are considered, though the team prefers to stay clear of the volatile mining sector.
Fast exposure
An ETF position is held in physical gold, though generally Jupiter prefers to use trackers only at the margin.
Blake explains: “We use ETFs sometimes when we are looking for a quick exposure to a market. For example, if you want exposure to the US and you buy a unit trust you are getting tomorrow’s 12 O’clock price in the US. Whereas if Asia and Europe are up and you know the US will be up, ETFs are a quick way of getting that immediate exposure.”
Property for now though is avoided – Blake memorably calls it a “lobster pot investment” given that it is easy to get into but difficult to get out of.
“If you consider the last property crash in ’90s, the total return on property went to about 12% yield, but it is 5% now so you are not really being offered value for it,” he exclaims.
A sensible approach, and with an emphasis on the tried and tested alpha-generating fund managers, Jupiter is taking all the best steps it can to ensure a bright future for its clients.
