The Jupiter Merlin Real Return portfolio had 71% in absolute return funds as at 31 May 2018, including holdings in Old Mutual Global Equity Absolute Return, Jupiter Absolute Return and Polar Capital UK Absolute Equity.
The remainder of the UK version of the fund will be invested in equity funds (27%), gold (5%) and physical cash (5%). However, the fund will have the flexibility to invest in fixed interest, commodities and property.
Darius McDermott, managing director at Chelsea Financial Services, finds the fund’s expected equities weighting “quite punchy” for a product that is supposed to have an absolute return mentality.
“Clearly if markets go very bad then people would get a negative return,” he said.
The Sicav version invests 27.4% in equity funds, spread out across global equities (13.9%), Asian and emerging market equities (6.8%) and US equities (6.8%). It has a cash weighting of 1.7%.
Commenting on the launch Algy Smith-Maxwell, a manager within the Jupiter Merlin team, said the Real Return portfolio “should be very well placed at a time when equity and bond markets have enjoyed a nine-year bull run”.
The UK version of the fund aims to deliver a return of 3% net of fees above the consumer price index over three-year rolling periods.
McDermott admitted that having an “equity kicker” has helped the Sicav fund’s recent performance.
Since launching just over five years ago, the Jupiter Merlin Real Return portfolio has returned 45.28% compared with the FO Mixed Asset sector’s 26.95%, according to FE Analytics.
Over one and three years it has returned 7.2% and 38% respectively, while peers in the sector have returned 1.7% and 21.9% over the same time frame.
Jupiter global head of distribution Nick Ring said the rationale for launching a unit trust form of the Real Return portfolio was the “clear demand” from clients for a product that offers “exposure to the growing universe of absolute return funds, while leaving fund selection in the hands of an experienced team of investors”.
Fundscape CEO Bella Caridade-Ferreira agreed the Merlin team are banking on the fact “investors will be looking for absolute strategies and safe pairs of hands” when volatility picks up.
But she suspects the real reason for launching a UK version of the fund is about re-profiling the fund amidst considerable competition from multi-manager groups like Architas, Old Mutual and Hargreaves Lansdown.
Currently sitting at €163m, the Sicav fund is small compared with many peers and even other fund of funds from the Jupiter Merlin range.
“Jupiter has a track record in the multi-manager arena and so normally wouldn’t need to launch a UK version of the fund … unless it’s targeting end consumers directly,” Caridade-Ferreira said.
“However, according to our data, the Luxembourg version doesn’t attract any sales in the UK, so this might be about re-profiling the fund and the team.”
Still, McDermott notes the Sicav fund “is not super cheap” with an annual management charge of 0.75% and an ongoing charges figure of 1.63%
Caridade-Ferreira said fund-of-funds products will always be expensive, not least of all a fund of absolute return funds. But she said fees will be an issue given it is going up against similar fund of funds products from Janus Henderson and GAM.
It will also have to compete with other real return funds like Newton Real Return, “which has the benefit of not being fund of funds,” she added.
Despite its dear price tag, McDermott said the Jupiter Merlin outfit led by John Chatfeild-Roberts (pictured) is a “good fund researching and multi-manager team” that is “very, very experienced”.
“They certainly have the credentials to do it,” he said.