Jupiter faces ‘obvious’ fund mergers in Asian and European equities

Jupiter faces “obvious” fund mergers further down the line in its Asian equity and European equity products as it starts to tinker with its fund range ahead of its acquisition of Merian.

Jupiter revealed on Thursday it would be bringing on 23 fund managers from Merian, but that some did not make the cut. It also planned to close the Merian Systematic Positive Skew fund and was mulling the future of the Merian Global Dynamic Allocation fund.

AJ Bell head of active portfolios Ryan Hughes said there had been fewer changes than he was expecting to the fund line-up.

“Fair enough they might want to tread slowly with this one but there are certainly some overlapping products still that could easily be merged to simplify the range,” he said.

“Because the one thing that struck me when I looked at the range in the document is that it’s huge.”

Hughes expected mergers would probably take place once authorised corporate directors and trustees had been aligned, which could take around six months.

“The next step ahead is how do they consolidate that down to a range that fund researchers and fund buyers really understand. I always say that I want fund groups to focus on what they’re world class at and not try and be a jack of all trades.”

Merian’s Asian and European equity funds obvious candidates for mergers

The Merian Asian Equity Income fund was an “obvious” candidate for a merger because Jupiter has specialist expertise in that area via Jason Pidcock (pictured), Hughes said.

The Merian Asian Equity Income fund is run by quant duo, Amadeo Alentorn and Ian Heslop.

They also run the Merian European Equity (ex UK) fund “whereas Jupiter have obviously just recruited a very high-quality duo from Threadneedle”, Hughes said. Mark Nichols and Mark Heslop joined Jupiter in 2019.

Alentorn and Heslop co-manage 13 funds, according to Trustnet, and Hughes noted several of these are sub scale. “I’m sure Jupiter will look long and hard at the suitability of this given they have well known managers that would not only take on the management of these funds but ultimately absorb them into their existing funds to try and drive some costs out of the business and efficiently use their scale.”

The Merian Europe (ex UK) Smaller Companies fund was also a candidate for a merger with the freshly launched Jupiter European Smaller Companies fund, which was unveiled in February. The Merian fund has significantly shrunk in size over the last three years from £324.6m to £27.4m, according to Morningstar data. Manager Ian Ormiston, who has been at the helm since November 2014, was among the Merian managers that have been replaced.

Additionally, the Merian China Equity fund, which was run by Joshua Crabb until 2018, is outsourced to Ping An. Hughes reckons the in-house emerging markets team at Jupiter could pick up that fund.

Merian never found their niche in fixed income

The exit of several fund managers from Merian’s fixed income range does not surprise Hughes.

Jupiter’s Adam Darling and Harry Richards will take over the Merian Corporate Bond and Merian Monthly Income Bond Funds from Lloyd Harris and Simon Prior. Jupiter’s Alejandro Arevalo will take over the Merian Emerging Market Debt Fund and a local currency equivalent. Arevalo replaces Delphine Arrighi.

Hughes says the Merian fixed income team “never really found their niche” in the market.

“I think you talk to people like me and my counterparts we wouldn’t say that Merian’s one of the go to places for fixed interest. That was almost inevitable that there would be some team consolidation in that area.”

But Harris and Lloyd delivered consistently top-quartile performance.

The Merian Corporate Bond fund, for example, has returned 30.6% over five years compared to 25.6% in the Investment Association Sterling Corporate Bond sector.

Like Hughes, Willis Owen head of personal investing Adrian Lowcock said Jupiter is better known for fixed income than Merian.

“Whilst on the surface it would seem performance should be the main driver for who leads a fund, the reality is there is more to it,” Lowcock says. “The individuals involved may have their own preferences. Fund management is more often than not a team process and it is how individuals fit in the team.”

AUM for Merian funds facing manager changes under Jupiter deal

Source: Morningstar

Addressing Merian Gear will not be a simple task

The Merian Global Equity Absolute Return fund (Gear) has survived the first phase of the fund ranges merging unscathed.

“The Merian Gear fund and indeed the whole absolute return investing market is not the simplest area to address,” said Lowcock. “This is probably an area where the combined group need to think long and hard about their proposition before making any changes to the funds they have in that space.”

Hughes is not surprised Gear was left untouched.

“It’s one of those funds that absolutely had a really, really tough time. And it’s not the first time that that strategy struggled. They’ve historically, like a lot of quant models, struggled at major inflection points. We’re at one of those with events going on around the world.”

He said it was hard to imagine what changes could be made to the team. “At the end of the day, Ian and Amadeo have got a process, it’s worked well at various times, it hasn’t worked at others.”