What's at stake in the Jupiter and Merian marriage; A US equity stalwart under suspicion
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Acquired taste
Disappointed by its European adventures, Jupiter’s deal for Merian this morning confirms it’s doubling down on the UK market. There’s an analogy in there somewhere - particularly as the fund firm has also been keen to cut a deal with US counterparts of late.
But while UK fund buyers are thoroughly familiar with both Jupiter and Merian’s offerings, neither is as popular with the discretionary community as they have been in the past.
More DFMs exited Merian Global Absolute Return and Jupiter European last year than any other strategies in our fund selection database. That leaves Jupiter Strategic Bond, Merian North American Equity and, in a less popular asset class, Merian Gold & Silver as the only real go-to strategies for professional fund selectors.
Those outflows mean many analysts see today’s move as defensive and tactical rather than strategic in nature. Jupiter shares like the deal, however - partly, perhaps, because up to £100m of the purchase price can be clawed back if Merian outflows continue.
But whatever shareholders’ thoughts about M&A activity, industry consolidation hasn’t tended to change wealth managers’ minds on their fund preferences - for better or for worse.
Most are content to believe company management knows which teams matter and why. The real risk is that fund managers themselves up and leave, but lock-in periods tend to minimise that concern at first.
And in today’s case there’s little overlap between the two companies’ fund ranges. Ostensibly similar strengths in UK equities and absolute return are in largely in different parts of these asset classes.
Shared expertise will undoubtedly be of benefit, and may bring some interest back to the table. But stemming the bleeding is the first order of the day. Performance has stabilised at Merian Gear, and Jupiter European’s returns have largely carried on where Alexander Darwall left off. Come deal completion time later this year, fund selectors will have a better idea of whether the combined company will be starting afresh or still tending to its wounds.
Standing out
Active managers’ troubles in the US, in particular, need little further explanation here. But as the popularity of Merian North American Equity shows, those doing something a little different can still flourish.
Another stalwart of DFMs’ portfolios in recent times - indeed the single most popular US equity fund in our dataset, active or passive - is JPM US Equity Income.
The fund isn’t always defensive in a traditional sense (its largest positions are in US banks), and nor is the US market’s meagre dividend yield much compensation - the fund currently throws off little more than 2 per cent. But its holdings do stand in contrast to most US equity offerings out there.
This weekend, however, Clare Hart’s portfolio found itself ranked in Bestinvest’s ‘Spot the Dog’ list, having trailed its market by a cumulative 8 per cent over the past three years. The authors acknowledge that’s a slightly false position. If anything, its underperformance is minimal given the fund’s lack of big tech names.
At the same time, however, the absence of tech doesn’t mean the strategy is destined to bounce back as soon as a market rotation occurs. As we’ve noted before, the fund has been at the top of DFMs’ buy-lists for many years now.
That, and its relatively resilient performance, emphasises that it hasn’t gone completely of-piste in its stock selection. Its strengths emphasise that the US market hasn’t just been about the tech story. In that context, it’s a reminder that not everything that shuns tech is destined to do well if the current narrative reverses.
Fixing up
It’s not quite a Merger Monday, but there is another deal in the UK retail investment world today. Interactive Investor has continued its recent acquisition spree by buying the Share Centre.
Hot on the heels of its 2019 purchase of Alliance Trust Savings and, further back, the integration of TD Direct, today’s news underlines that scale is a necessity in the D2C platform world. Still, II’s market share will remain around the 15 per cent mark - such is the dominance of Hargreaves Lansdown.
But while the retail market is fast being thinned out, II’s own bet isn’t just to do with scale. Its fixed fee model is in keeping with the Share Centre’s own pricing. That should work out as cheaper for consumers. If II can succeed whether others have failed and take market share from HL, those elsewhere in the investment industry may take a closer look at similar pricing structures.
