Cautious stance dampens returns for financial’s star

Thanks to the breadth and depth of the global financial sector, it is possible, in hindsight, to grow investors’ capital in almost all market conditions, according to Guy de Blonay, manager of the £446m Jupiter Financial Opportunities fund.

Aim:

The fund’s mandate changed in January 2011, when manager Guy de Blonay took over from Philip Gibbs and turned it from a financials fund with a total return focus, to a pure financials fund. Mr de Blonay now runs a highly concentrated portfolio with the sole aim of growing clients’ capital over the long term.

Process:

The manager combines thematic top-down analysis, looking at dominant and sustainable structural and cyclical drivers in the financial sector, with stockpicking based on the fundamentals of individual companies. Mr de Blonay claims that it is difficult to make fundamentally based macroeconomic calls with real confidence when authorities are actively intervening in free market activity, which has become the norm in recent years.

“Although I carefully monitor the prevailing macroeconomic conditions (such as levels of indebtedness, prospects for employment growth etc), as well as changes to economic and monetary policy, the heightened intervention of both governments and central banks have taught me many lessons about the limitations of a macro-dominated approach,” he says.

The portfolio holds a combination of instruments offering an income, instruments offering growth and special situations, avoiding businesses exposed to sovereign debt and regulatory risk. Key themes include the recovery of mortgage lending in the US, the growth in credit card and electronic payment services and broader expansion of financial services in emerging markets.

Mr de Blonay has recently increased his exposure to banks and insurers in Europe. Recent news from the eurozone, where the central bank has outlined plans to conditionally support the bonds of highly indebted nations, has been positive. The manager claims that these steps are likely to buy time for Spain and Italy to turn around their government finances, implement necessary structural reforms and restore confidence in the region.

Performance:

In the 12 months to September 20, the fund has underperformed its benchmark, the MSCI All-Country World Financials index, returning 8.11 per cent compared with 16 per cent. Mr de Blonay attributes this to his cautious stance towards Spain and Italy, which he says posted strong double-digit returns on the prospect that the European Central Bank would backstop sovereign bond markets. As well as this, he says the sharp rally in US banks, which he has avoided due to heightened regulatory risk, dragged on returns.

However, he took the decision earlier this year to increase his focus on picking individual stocks, which is starting to bear fruit. In the six months to September 20, the portfolio outperformed its benchmark index, returning 0.1 per cent compared with the benchmark’s 1.44 per cent loss.