To recap, net flows of £579m in the third quarter took the boutique’s AUM to a record £25bn – compared to combined outflows of £527m in the previous three quarters.
These inflows were, its interim statement said, predominantly large deals in funds positioned towards the cautious end of the risk spectrum, such as Merlin Income, Strategic Bond and Global Convertibles. The question is should this be interpreted as recognition of Jupiter’s strength in depth or a sign of the sorry state of an industry that’s biding its time until the next bull market?
I’m not pointing the finger at just Jupiter here – many of its peers are in the same boat – but these funds hardly set the pulse racing for an industry where many of its brightest lights built their reputation on stellar growth and outperformance rather than capital preservation. This is especially true in the retail marketplace.
Star manager culture
That’s not to say these funds haven’t delivered growth or outperformance, but the mass move into fixed income asset classes is not a particularly healthy sign. Nor does the mood of caution reflect the true nature of an industry built around its star manager culture.
The latest launch from Jupiter was its Merlin Conservative Portfolio, billed as a “first step for nervous investors". The fund was launched with 61% in fixed income, though exposure to gilts is minimal.
John Chatfeild-Roberts, Jupiter CIO and lead manager on the fund, recently told me that he wasn’t surprised by the considerable inflows into the bonds space this year – fixed income sectors have been the best-sellers for nine consecutive months, according to the IMA.
“People who want safety are forced into buying assets because you get very little from a bank account,” he said.
“20 years ago you could get a real yield on gilts, after tax but before inflation, of about 4-6%. Now, people now are making a rational choice in that they don’t want to have negative real yield so they want to buy something that does have a real yield that’s greater than inflation.
“But the people that are buying are nervous about volatility and they perceive that corporate bonds have less volatility than equities.”
Liquidity issues
But what happens when the wind changes and equities come back into favour? Chatfeild-Roberts concedes that liquidity could become a big issue in the future, but for now many fund managers appear to be sticking very much to the cautious mindset while also squeezing out yield wherever they can find it.
As the head of another influential fund group told me this week, when the bull market comes, you can expect it will come quickly. In the meantime, the more that can be done to encourage investors to take a chance with funds now – however cautious they may be – the less likely they are to stick with cash when the real growth comes.
