Jupiter’s James Clunie is resisting allocating a flood of cash coming into his fund as he focuses on “staying alive” during a sustained bull market.
The firm’s Absolute Return portfolio has proved popular among fund buyers and has enjoyed substantial inflows recently, passing the £900m mark last month.
But Mr Clunie, who has run the fund since September 2013, said he was avoiding investing this new money en masse across all of his trades.
Instead, he has been initiating new positions “from time to time”, as well as topping up holdings on a case-by-case basis.
“There are two ways to deploy the new cash,” the manager said.
“You can A, slam it in, or B, cherry-pick trades. The hassle-free way is to slam it in. The harder way is to pick your trades carefully – you have to think every day.
“We haven’t been slamming in new money. We have let [our short positions] drift a little bit smaller.”
Mr Clunie said he continued to position himself as a provider of liquidity to other market participants.
He explained: “If [in the case of a long position] the stock is down a couple of per cent and there’s no news flow, it’s probably someone trying to dump some stocks.
“Today we have got three stocks down about 4 per cent, which we are long. We will get some cash deployed at 4 or 5 per cent better than yesterday.”
This cautious approach comes at a time when Mr Clunie has dedicated substantial resources to shorting the US market, with 21.7 per cent of the fund’s net assets committed to this at the end of January.
But despite growing fears of a correction, the market has so far avoided this scenario, with the S&P 500 index posting a year-to-date gain of 7.2 per cent in dollar terms, data from FE Analytics shows.
Mr Clunie has maintained a high number of short positions in this environment, though he has resisted growing them in line with the fund’s assets.
“We have around 65 long positions and 110 short positions,” he said. “That’s a high number. Many of them are small and overpriced, but refuse to go down. It has been appropriate to keep it small and wait for a better moment to short them.”
Mr Clunie added that while the current backdrop of buoyant valuations should theoretically provide an abundance of opportunities for short sellers, the approach has come under continuous pressure from a steadily rising market.
“Is there a better time to be a short seller?” he asked.
“Going forward it should be really interesting for people who specialise in shorting, but having got here was excruciatingly painful. I haven’t enjoyed a single moment of work for years. It’s hard going to work and getting beaten up every day. It’s important to be there at a turning point.”
On the long side Mr Clunie has continued to favour UK exposure, having added to the likes of BP and Rio Tinto in the wake of last year’s Brexit result. At the end of January he had 20.3 per cent of the fund in long positions in the country.
At the margin he noted that other regions such as Russia, which made up 2.2 per cent of the fund, appeared attractive.
“Russia looks to be the cheapest market in the world. It has extremely well-known and dangerous risks,” he said.
The Jupiter Absolute Return fund has returned 16.1 per cent over three years, data from FE shows.
Clunie keen to avoid second fund pitfalls
Jupiter is considering the launch of a second fund for James Clunie: a twice-leveraged version of his Absolute Return strategy.
However, the manager said that any such product would require an “algorithmic” approach to avoid investors being treated unfairly.
“There’s some evidence that with side-by-side funds, some managers are ethical about them but others put their best ideas into the higher-fee fund,” Mr Clunie said. “I’m keen to avoid that. If we do something I want it to be completely clean and algorithmic – an automated process.”
The fund would mirror his existing vehicle’s trades, with any “disturbances” caused by differing inflows to the two offerings being rebalanced.
He also highlighted the differing risk-reward equation involved in a higher-octane approach. “The good news is if you lever the fund up you get [twice as much] alpha – but you get twice as much downside risk.”
KEY NUMBERS
110
Approximate number of short positions in James Clunie’s fund
21.7%
Proportion of the Jupiter vehicle’s assets shorting the US market at the end of January
