100 Club: Jupiter pair put hoarded cash to work

100 Club: Jupiter pair put hoarded cash to work

The managers of the Jupiter Distribution fund have been putting some of their hoarded cash to work buying equities following the UK election.

Jupiter managers Alastair Gunn and Rhys Petheram had built up a “reserve of cash” of nearly 10 per cent in recent months in the face of “major uncertainties” around the world.

The pair recently said investors were displaying a “seemingly blithe disregard” for potentially serious events, such as the uncertain outcome of the UK election and a possible Greek exit from the eurozone.

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But they have now started putting some of that cash pile to work and said they still preferred equities to bonds, in spite of a recent sell-off in bond markets potentially throwing up more value in the asset class.

“We are finding more opportunities in equities than in bonds and have been using the fund’s cash to add to our equity holdings across the board, along with some new names,” they said.

“This is consistent with our view that in the current environment the best risk-adjusted opportunities are to be found in equities.”

While the managers have been adding to equity positions, they do not have much leeway in increasing their weighting, given that the 31.25 per cent exposure to equities at the end of April was close to the upper limit of 35 per cent imposed by the fund’s sector, the IA Mixed Investment 0-35% Shares sector.

The majority of the fund was still invested in fixed income assets, but the managers said they were cautiously positioned within that weighting in anticipation of rising interest rates in the US and the UK.

“Given that the Bank [of England] has a stimulatory stance for monetary policy and has repeatedly said that interest rates are to rise, we remain defensively positioned with our bond holdings,” they said.

Mr Gunn and Mr Petheram said they were seeking returns from overseas, with currency-hedged positions in certain US, Australian and New Zealand bonds.

In terms of recent portfolio activity, the managers said in addition to topping up the fund’s core equity holdings, they had also bought into fund administrator Sanne when it floated on the stock exchange in April.

Although they expressed a preference for equities over bonds, the pair said they had invested in a high-yield bond from utilities firm Anglia Water, because it appeared to offer better value than its equity.

“The Anglia bond is less sensitive to high interest rates than the comparable equity [which behaves like a long-dated asset]that the fund does not own,” the managers said.

“From an equity viewpoint, we dislike the capital structure of water utilities where regulatory reviews can leave dividends prone to being cut. In addition, their popularity as bond proxies means that utilities’ equities are currently valued at takeover levels yet remain very sensitive to higher interest rates.”