Jupiter’s decision to close its UK Alpha and Enhanced Distribution funds has been hailed as “sensible” amid pressure from the Financial Conduct Authority to deliver value for investors and something which potentially reflects top boss Andrew Formica’s plans for the future.
Run by Richard Curling since 2016 Jupiter UK Alpha has struggled to beat peers in the IA UK All Companies sector and is currently fourth quartile over one, three and five years.
The Jupiter Enhanced Distribution fund co-managed by Alastair Gunn and Rhys Petheram has similarly lagged peers since it launched in September 2015. Over three years the fund is fourth quartile, delivering 8.5% against the IA Mixed Investment 20%-60% Shares’ 13.0% returns, while on a one-year view it is third quartile.
Jupiter has better funds in similar areas
Chelsea Financial Services managing director Darius McDermott said closing both funds was a “sensible decision,” pointing out that the firm has a large number of funds including better performers in the IA UK All Companies and Mixed Investment sectors where the funds reside.
“Both funds have very few assets under management now and it is good to see that Jupiter is addressing the issue of underperformance,” he said.
The 25-year-old Jupiter UK Alpha has always been comparatively small, reaching a peak size of £24.7m in November 2015, data from Morningstar shows. But over the last two years it has been contracting, with assets falling from £20.1m in January 2018 to £4.2m by December 2019.
Over the same period the Jupiter Enhanced Distribution fund was hit with £9.1m worth of outflows taking total assets from £19.7m to £10.6m. This is not far off its size at launch of £10.3m.
Fund groups taking the FCA seriously
AJ Bell head of active portfolios Ryan Hughes also thought the dual closures were a good outcome for investors and evidence fund groups are taking the FCA’s value for money assessments seriously.
“One of the things the FCA said in 2016 is they want asset managers to be more proactive in the management of their fund ranges and so this is a good thing,” said Hughes.
“We’ve got some funds that aren’t delivering for customers, that are subscale, and therefore they’re being closed so that’s probably a decent outcome for those customers in those funds.”
Portfolio Adviser understands the decision to close the funds was not related to the regulator’s value for money assessment but was the result of a normal fund review process.
A spokesperson for Jupiter said at their current small scale, the funds were continuing to contract, making them unwieldy to manage and harder to diversify.
“We do not anticipate a resurgence of interest in these funds in the near term to generate sufficient new inflows to make the funds sustainable going forward,” they said. “Consequently, we believe closure of the funds is the correct decision to take for investors.”
Part of Formica’s plan
Willis Owen head of personal investing Adrian Lowcock said the closures might also reflect Jupiter’s strategy under new chief executive Formica.
“It is also important to consider this as part of the larger plans for Jupiter, which under Andrew Formica is looking to grow not just in the UK but potentially globally,” he said.
“Focusing the list of funds the group has to offer and concentrate its resources into products that can drive growth is likely to be a core part of Formica’s strategy.”
Jupiter UK Alpha suffers from value bent
Hughes said the Jupiter UK Alpha fund has suffered because of its value style bias.
The fund’s top 10 holdings currently include high street banks like Lloyds and Barclays and publisher WPP all of which have seen their share price fall in recent years.
“The fund has a distinct value style to it currently and that has struggled even for the best value managers in recent years,” said Lowcock.
Jupiter UK Alpha’s exposure to Sirius Minerals probably didn’t help performance either, Hughes notes.
Last October the minerals company, which is currently seeking emergency financing to prevent its collapse, made up 0.4% of the portfolio, he notes. Jupiter is currently the second largest investor in Sirius.
Meanwhile Gunn’s and Petheram’s fund “never really got off the ground,” says Hughes. Jupiter Enhanced Distribution has consistently underperformed its benchmark year on year, he notes, and there are many other options to choose from in the mixed investment space.
Managers will carry on as usual
Both funds will close their doors on 31 March with the last day of dealings commencing on 30 March.
Curling, Gunn and Petheram will continue running their other mandates at Jupiter.
Curling runs two other fund of funds at Jupiter – the Jupiter Monthly Alternative Income, which currently sits at £245.4m, and the £114.2m Jupiter Fund of Investment Trusts. He also assists Ben Whitmore in running the Omnis Income and Growth mandate, the white label Whitmore inherited from Neil Woodford after his equity income fund was suspended.
Gunn and Petheram are co-managers on two larger funds that sit within the IA Mixed Investments sector, including the £692.5m Jupiter Distribution fund. Gunn is also the sole manager on the pint-sized Jupiter Growth & Income fund (£47.1m), while Petheram co-manages the even smaller Jupiter Global Ecology Diversified fund (€15.7m).
