All change again for Jupiter Global

Jupiter Global’s board has decided to seek shareholders’ approval for a change in both the company’s investment strategy and name with effect from the general meeting of shareholders which has been convened for next month. These changes are the subject of a circular which has been posted alongside the Half Year report. This is an important decision and one to which the board have given careful thought.

After consideration of a number of different options, the board’s proposal is to move from the company’s current mixed mandate, comprising both funds and direct stocks measured against a composite benchmark of both UK and global indices, to a new, more focused UK growth objective that they believe will best position the company for future success.

If approved by shareholders, the company’s investment portfolio will be managed, with effect from next month, by Steve Davies, the highly regarded portfolio manager of the £1.6bn Jupiter UK Growth unit trust. As part of these changes, the name of the company will be changed to Jupiter UK Growth Investment Trust PLC and, following a review by the board, the annual management charge payable to Jupiter will also be reduced.

They say the current investment strategy, which combines a UK equity portfolio with holdings in a number of global funds, is unique amongst the fund’s peer group and they believe it has served JPG well in recent years as both a source of returns and a differentiating factor within the investment company classifications. It has become increasingly clear to them, however, that the market for investment companies is evolving rapidly in the wake of potentially far-reaching market, technological and regulatory developments, culminating in the recent Retail Distribution Review. Although they have longer term benefits for investment trusts, these changes are not currently working to their advantage. As a relatively small investment trust, they have struggled to find support for their investment proposition as it is currently formulated.

Over the two years to 31 December 2015, despite satisfactory investment performance and significant savings in the costs of running the company, the total asset base of the company has declined by 19.4%. This is primarily the consequence of the board’s active commitment to eliminate the discount through share repurchases. Historically the company’s unique investment strategy and mixed mandate has been a source of strength. In today’s different market conditions, however, where scale and liquidity have become much more important, the board has determined that it is impeding the company’s ability to grow.

Changing the mandate to a more focused UK growth strategy will, in the board’s judgment, broaden the appeal and materially improve the marketability of our shares, whilst also cutting the cost of investing in the company and maintaining the potential for capital growth. They say they would not be proposing this change had it not been coupled with the opportunity to recruit one of Jupiter’s most talented fund managers in Steve Davies to implement a strategy for which he has already attracted a strong following in the Jupiter UK Growth unit trust.

Steve Davies has been co-managing the Jupiter UK Growth unit trust with considerable success since 2012, having served as deputy fund manager for three years before that. The Jupiter Undervalued Assets unit trust which Mr. Davies also managed from 2012 was merged with Jupiter UK Growth in 2015, at which point he took sole responsibility for the merged entity.

The Jupiter UK Growth fund is a top quartile performer over three and five years (data as at 29 February 2015). In the three years to 29 February 2016, it produced an NAV total return of 31.5%. This compares with a 12.5% total return on its benchmark, the FTSE All-Share index, over the same period. As a result of its strong track record and consistent support from both institutions and intermediaries, Jupiter UK Growth has attracted healthy inflows and now has £1.6bn in assets.

Mr. Davies’s investment approach is bottom-up and focuses on two specific types of opportunity.

• Recovery stocks: companies that have been written off or deemed un-investible by the market. The portfolio manager looks for specific catalysts such as industry restructuring or management change, combined with the expectation of substantial valuation upside given the inherent volatility of such situations.
• Growth stocks: companies that can generate above-average rates of growth over an extended time period. The portfolio manager applies a strict screening process to such stocks to ensure that they are acquired at reasonable prices.

Subject to shareholder approval, the spine of the company’s investment portfolio will in future be based on 30-35 “best ideas” made up of a mix of recovery and growth stocks. Index weightings are not a primary consideration during portfolio construction and the benchmark will be used only for performance reference purposes. Indeed Mr. Davies is happy to not hold big index constituents if the stock does not meet his recovery or growth criteria. The portfolio’s high “active share”, being the measure of how far a portfolio differs from the constituents of its benchmark index, is one of the most important criteria which any board that is looking to implement an active management approach needs to take into account.

Mr. Davies will invest across the full range of market capitalisation, but he has a longstanding bias towards large cap stocks in his open ended portfolios. Large cap stocks have consistently accounted for more than 50% of each portfolio, whereas small caps have generally been below 10%. He is active in managing the cash element of the portfolio, increasing it at times of market stress in order to provide a measure of insulation from volatility.

Mr. Davies’s concentrated investment style may tend to make his performance somewhat more volatile than funds which spread their portfolio across a much larger number of holdings. Equally such concentration creates opportunities for above average returns. This approach is very much in keeping with the original traditions of Jupiter Global company, whose founding aim was to focus primarily on capital appreciation through the economic and market cycle.

JPG : All change again for Jupiter Global