Best In ClassApr 2 2019

Best in Class: Jupiter Distribution

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Best in Class: Jupiter Distribution

The threats to the global economy are everywhere, with Brexit uncertainty, trade disputes between the US and China and continued fears of recession in Europe, and the resulting lack of confidence has seen investors pull money from markets.

Between October 2018 and January 2019, figures from the Investment Association show net retail sales fell almost £6.8bn.

But we are in a prolonged low interest rate world, a fact which is unlikely to change any time soon.

For equities, the team feel the outlook is much trickier given the market is being very unforgiving (in terms of share price) of any result it dislikes.

With interest rates in the UK at 0.75 per cent and the best-paying easy access cash Isa around 1.5 per cent, even cautious investors need an alternative to stop their assets being eroded by inflation.

Sitting on your hands is not really an option in my view.

This week’s best in class might be the perfect solution for the more risk-averse investor. The Jupiter Distribution fund focuses on risk control and capital preservation, while also offering a monthly income.

This fund, launched in 2002, has an approximate 70:30 ratio between holdings in fixed income and equities, with the allocation actively managed. The equities allocation is limited to 35 per cent.

Alastair Gunn and Rhys Petheram have both managed this fund since July 2010. Mr Gunn, who joined Jupiter in 2007, manages the equities portion of the portfolio, while Mr Petheram, who joined in 2006, manages the fixed income element.

Between them, the pair run a trio of distribution vehicles, with a £16m Enhanced Distribution fund and £365m Distribution and Growth fund, complimenting the suite.

The investment philosophy of the £786m Distribution fund sees the managers meet companies together to analyse whether the best investment opportunities lie in their equity or debt structure.

UK investments must form a minimum 80 per cent of the equity portion and investment grade bonds must take up a minimum 90 per cent of the bonds portion.

Within the equities bucket of the portfolio, Mr Gunn typically takes a three to five-year view with a preference for large, undervalued companies which benefit from barriers to entry preventing newcomers in their respective markets.

He also tends to avoid those companies which do not pay a dividend or are highly regulated.

The larger fixed income portion of the fund sees Mr Petheram focus on higher quality corporate bonds, as well as government bonds.

He also has a preference for companies actively reducing their debt levels. He adjusts the duration, yield curve positioning and credit risk within the fixed interest segment of the portfolio, based on his current market views.

The pair currently hold two-thirds (66.8 per cent) of the portfolio in bonds, as they feel we are in a ‘late cycle’ as opposed to an ‘end of cycle’ scenario.

In addition to government and corporate bonds, the team can also invest up to 10 per cent in high-yield bonds and non-rated bonds.

A quarter of the fund (25.4 per cent) is currently held in equities, the fund fact sheet for March 2019 shows, with the remainder in cash.

For equities, the team feel the outlook is much trickier given the market is being very unforgiving (in terms of share price) of any result it dislikes.

Although they see value in the UK market, they have had to cap exposure as they feel the outcomes for Brexit are binary and, as a consequence, they have been very selective on UK stock picks, while also selecting a diverse range of international companies.

Performance has been fairly consistent on the portfolio returning 20.9 per cent and 102.6 per cent in the past five and 10 years respectively, according to total returns in sterling data from FE Analytics to March 27 2019.

The fund also has a historic yield of 3.2 per cent, with an OCF of 0.61 per cent.

This fund could be ideal for a cautious investor, particularly those at or approaching retirement.

It has consistently outperformed the Investment Association Mixed Investment 0-35% shares sector in the medium to long-term and offers investors a bit of added security.

Darius McDermott is managing director of FundCalibre