Multi-assetMay 31 2016

Fund Review: Jupiter Merlin Balanced Portfolio

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John Chatfeild-Roberts heads up the Jupiter independent fund team which manages the £1.5bn Jupiter Merlin Balanced Portfolio, part of its Merlin range of multi-asset funds.

He explains: “The portfolio aims to achieve long-term capital growth with income by investing predominantly in unit trusts, Oeics, exchange-traded funds and other collective investment schemes across several management groups. The underlying funds invest in international equities, fixed interest stocks, commodities and property.”

The process has remained the same since the fund’s launch in October 2002, with the team regularly assessing the current and future market environment and tailoring their asset allocation accordingly. This approach applies across the range of Merlin portfolios.

Mr Chatfeild-Roberts notes: “The team assesses the fund managers that they consider are best placed to deliver the best returns in each market environment. Aiming to provide consistent returns across a range of economic environments, the team spends its time researching managers, identifying those they believe will perform best in differing economic conditions.”

The portfolio has a small amount held in cash, he confirms. “Equities are our preferred asset class for income-seeking long-term investors who are also looking for growth and we have stayed at our maximum permitted percentage allocation to equities,” he adds. “The equity fund managers we favour seek to invest in good-quality companies with strong competitive advantages, strong balance sheets and the ability to generate cash – both to reinvest in the business and to distribute to shareholders as dividends.”

On the portfolio’s fixed income allocation, the manager remarks that for the past two years deflationary pressure, low/negative interest rates and QE have kept downward pressure on bond yields, especially in the government sector. “We typically invest with strategic bond managers who are not tied to any particular category of bonds but who have the flexibility to invest across the spectrum in search of value at what they deem an acceptable level of risk.”

He says the portfolio has undergone few changes in the past year but points to a couple of significant moves. “We reduced, but didn’t sell completely, our holding in M&G Global Dividend [fund] in the first half of 2015 so as to reduce our exposure to energy-sensitive companies,” he recalls. “As and when Mayfair Capital has found appropriate properties we have added money to that property holding. And, more recently, money has been added to Evenlode Income.”

The fund sits firmly in the middle of the risk-reward scale at level four, while ongoing charges of 1.6 per cent apply to the I clean share class.

EXPERT VIEW - Oliver Stone, head of research, Fairstone Group

This is one of the long-standing Jupiter Merlin multi-manager funds. It looks to achieve long-term capital growth via, first, a thorough assessment of macroeconomic conditions, followed by high-conviction fund manager selections across a range of asset classes. Relative performance lagged from 2012 through to 2015 due to emerging market equities and gold exposures. However, these allocations have now paid off, and the longer term absolute and risk-adjusted track record of the fund stretching back to 2002 is exemplary, with the fund having protected investors well through 2007-08, while participating in the subsequent market upside.

The fund has outperformed its peer group, the IA Mixed Investment 40-85% Shares sector, over one, three, five and 10 years. According to FE Analytics, the fund has delivered 76.1 per cent in the 10 years to May 17, compared to the sector average of 49.5 per cent. More recently, the fund’s performance has found itself in negative territory, down 0.5 per cent, but ahead of the sector, which averaged -2.9 per cent in the 12 months to May 17.

Mr Chatfeild-Roberts reveals: “Our holding in physical gold has performed well this year, as have the Findlay Park American, Fundsmith Equity and Evenlode Income [funds].”

But he is reluctant to highlight any holdings that have detracted from performance in the near term, on the basis that he seeks long-term performance.

He continues to favour equities over bonds, but still sees opportunities in fixed income, suggesting: “During 2015, income-seeking fund managers typically found corporate high-yield bond markets a more attractive sector. While this is more risky than investing in government bonds, if fixed income fund managers (through their research into the company issuing the bond) are satisfied they will get their money back when the bonds are due to be redeemed, there are still opportunities for a decent rate of return. We continue to believe that the Jupiter Merlin Balanced Portfolio is well positioned for medium- to long-term investors, given the variety of opportunities and potential risks we see present in global investment markets.”