Jupiter’s absolute return and ecology funds have been downgraded by Morningstar due to resourcing issues.
Increased workload and a lack of resources has seen James Clunie’s Absolute Return fund and Charlie Thomas’s Ecology fund demoted from a rating of bronze to neutral.
Morningstar analyst Fatima Khizou said Jupiter Absolute Return has been managed by Clunie (pictured) since September 2013 using a straightforward investment approach which puts high emphasis on quantitative screens but less on the fundamental analysis.
She said: “This approach has resulted in a portfolio that has exhibited long-lasting biases and a mixed track record. We acknowledge Clunie’s experience, but, relative to competitors, the resources dedicated to implement this strategy are light and a lot rests on his shoulders.”
Analyst Ronald Van Genderen said the Jupiter Ecology fund, which has been managed by Thomas since 2003, has “lost its appeal” since the manager accumulated responsibilities in recent years.
“He was given additional responsibilities in 2016 after the introduction of two new strategies, which brings the total to five strategies under his helm. This raises concerns around his workload especially because he lost direct support from portfolio manager Abbie Llewellyn-Waters and sustainability investment analyst Mark Evans,” Van Genderen said.
“To our opinion, this is a substantial decrease in available resources, as Thomas is now supported by only one analyst; it also adds to our concern regarding Thomas’s workload and dents our conviction in the execution of the process.”
Too much responsibility
Willis Owen head of personal investing Adrian Lowcock told Portfolio Adviser he agreed about the lack of resources available.
He said: “Clunie is clearly a bright and insightful fund manager with a unique way of looking at the world but investing in absolute return is requiring an increasing amount of resources and putting the responsibilities on one person means there is a lot of possibilities to miss something.”
He explained that Jupiter ecology is an interest Thomas is synonymous with ethical investing and has built up an excellent reputation but “fund managers have limitations on their time and as they take on more responsibilities, they need more resources to support them”.
“This is an area which is seeing a lot of activity and investment from other groups so to keep ahead of the competition needs some investment,” he added.
Tilney managing director Jason Hollands said he also downgraded Jupiter Ecology in February 2018 following a review of the sustainable funds on Tilney’s buy list.
“The lead managers’ responsibilities have grown over time and performance has been disappointing, though clearly with this type of mandate periods of significant deviation from broader indices needs to be expected,” he said.
Further downgrades
Elsewhere, Witan investment trust was among the list of funds to be downgraded to bronze from silver, while Majedie UK Equity was downgraded to neutral from bronze.
Hollands said: “Majedie UK Equity is another fund we used to use but currently don’t. The fund has experienced some team changes which overall seem quite positive, but we would want to see how these bed in and whether there is a shift in style.”
On Majedie, Peter Brunt, associate director at Morningstar, said: “Changes to the team managing this strategy have raised concerns over the approach to blending underlying managers and the level of diligence in manager selection. When combined with changes in personnel and structure to the broader supporting team, and a limited level of disclosure, our conviction has decreased.”
Meanwhile, senior analyst David Holder, said the Witan investment trust still remains a “solid choice” for investors seeking core global equity exposure but Morningstar believes the investment process no longer stands out on a relative basis.
However, Lowcock said Witan’s downgrade is “less a criticism” of Witan and more a recognition that Morningstar has done more work on investment trusts and as a result has revised its initial view.
“With regards to the others, it shows the importance of staying on top of fund managers as not only do teams and structures change but events that might be stock specific raise concerns on processes,” he added.
