Guy de Blonay is the lead manager of the £481m Jupiter Financial Opportunities fund which he took over in 2011 from Philip Gibbs and now runs with deputy manager Robert Mumby.
Summing up the aim of the fund, Mr de Blonay says: “It’s a global mandate, a highly diversified sector with many subsectors across the board and the approach is to look for companies that are attractively valued, operating in a sustainable and favourable environment.”
The fact that the fund has a global mandate and is investing in the hugely diversified financial sector means that the manager uses both a top down and bottom up approach to selecting holdings.
“The first one is to identify the places in the world where there are sustainable growth prospects, with a central bank or government in place that has a good track record in delivering what they’re promising,” explains the manager. “Then we have the bottom-up side of the equation which is finding companies that are benefiting from this favourable environment. The bottom up is the opportunity to find companies that are attractively valued or where we think the price is not reflecting the full potential of the business.”
Mr de Blonay reiterates that a cheap stock is not good enough on its own. “It has to be cheap and operating in a favourable environment for us to believe the price of a company can improve significantly from when we are looking at it,” he adds.
The portfolio comprises three “portions”: restructuring stories, the yield portion and growth stocks.
Financial companies that are making changes to management, resetting their targets or repositioning their business fall under the restructuring banner. Mr de Blonay cites banking group Lloyds as an example.
Mr de Blonay notes: “That’s why these companies have seen their share price improve dramatically because they are reassuring the investor base that they will give the money back to shareholders in the coming years as they grow their earnings.”
He continues: “The second group would be yield portion, so companies that are distributing most of their profits back to shareholders and as a result, depending on their share price, are trading on dividend yields that are approaching 5 or 6 per cent. This is probably the most defensive part of the portfolio.”
The manager says that the third part of the portfolio, the growth stock portion, has recently been reduced due to “perceived weakness in global growth”.
But he observes: “I would say that the restructuring and income or yield portions of the portfolio are by far the biggest portions at the moment, with growth stocks still to be found in emerging markets to a certain extent and in companies that have disruptive technology or products.”
The performance of the fund over three years to June 27 lags its benchmark, the MSCI All Countries World Financial index, with a bottom quartile return of 18.49 per cent against the benchmark’s top quartile 27.22 per cent return, according to data provider FE Analytics.
Mr de Blonay acknowledges that 2011 was a somewhat difficult year for the fund, having positioned the fund in the belief the eurozone crisis was going to be deeper than it turned out to be.
However, over the last 12 months to June 27 the fund’s performance has picked up, delivering an 8.86 per cent return, slightly above that of the benchmark’s 8.50 per cent.
The manager adds: “In 2011 we were a bit too bearish, we underestimated the strength of central banks, but in 2013 and going into 2014 we did much better to actually catch some of the lost performance in 2011.”
This could be why the fund currently sits at the riskier end on the risk/reward scale at level 6 and has an ongoing charge of 1.78 per cent.
He explains that the portfolio is now positioned on the basis any weakness in the US economy is down to one-off factors and that better data will emerge in the second half of 2014.
Mr de Blonay recalls that recent changes to the portfolio include reducing its exposure to wholesale banks that carry litigation risk, such as Barclays.
He explains: “We’ve reduced our exposure as well to Europe, basically to European banks. We think the macro data on Europe is not improving at a satisfactory run rate at the moment and that in spite of the latest news and promise of action from Mario Draghi, it seems we need to have a bit more positive news on economic growth to be comfortable enough to continue to support or to continue to be well exposed to European banks.”
EXPERT VIEW
Darius McDermott, managing director, Chelsea Financial Services
I rate this fund very highly and, this month, it marks its 10th year on our buy list, the Chelsea Selection. The managers’ investment strategy aims to exploit opportunities that exist in the financials sector and they have proved very adept at doing this. They use a top down macro thematic analysis to identify the best companies in the financial services sector and the portfolio is split equally three ways between high yielding stocks, growth stocks and special situations. The managers did particularly well in 2008 when, in the midst of the global financial crisis, they managed to give positive returns to investors. Today, it is predominately invested in the developed world with over 35 per cent of the fund in the US, although it does have some exposure to emerging markets, particularly in the growth portion of the portfolio.
