Best In ClassApr 14 2020

Best in Class: Jupiter Merlin Income Portfolio

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Best in Class: Jupiter Merlin Income Portfolio

“Beauty is boring because it is predictable.”

I am pretty certain the views of Italian literary critic and philosopher Umberto Eco were not meant to resonate with financial markets, but in these volatile times his words carry as much weight as anything the likes of legendary investors Warren Buffett, Benjamin Graham and Peter Lynch have provided in the past.

It has been carnage, as the spread of the coronavirus has effectively brought us to a standstill

How quickly the investment world has changed.

We have gone from scouring the globe for any value, to focusing almost solely on downside risk in a month.

It has been carnage, as the spread of the coronavirus has effectively brought us to a standstill.

That is where the strong and dependable funds come to the fore.

These are the types of funds which form the building blocks of a solid portfolio by consistently delivering.

This week’s Best in Class does precisely that – and just happens to be run by the most highly regarded multi-asset team in the UK.

The Jupiter Merlin Income fund is managed by a six-strong team headed up by John Chatfeild-Roberts.

John joined Jupiter in 2001 and was previously a director and head of the fund of funds team at Lazard.

The other team members are Algy Maxwell-Smith, Alastair Irvine, David Lewis, Amanda Sillars and George Fox.

This fund is one of a suite of unfettered fund of funds, which follow the same investment philosophy, but whose exposure to underlying funds is tailored to reflect their different investment objectives and risk tolerance.

The £2.1bn fund has a simple remit: to achieve a high and rising income, with some potential for capital growth.

In the past decade it has returned 49.7 per cent, compared to 35 per cent for the Investment Association Mixed Investment 20-60 per cent shares sector.

During the market plunges from 20 February 2020 to date (25 March), it has fallen 13.4 per cent in value compared to a sector average fall of 17.4 per cent.

The team’s investment process is refreshingly simple.

They use their expertise to select who they believe to be the best fund managers in each asset class and region, with the aim of producing the best possible returns consistent within the risk profile.

The process runs through four steps.

Firstly, the team analyse the macroeconomic environment, using research from a variety of sources.

They focus particularly on identifying key turning points (such as a turn in the interest rate cycle) in an accurate and timely manner.

Secondly, the team identify fund managers most likely to perform in a given macro environment, using ongoing quantitative and qualitative analysis.

Thirdly, they use this analysis to construct high conviction portfolios, based on what they foresee in terms of macroeconomic conditions going forward.

Benchmarks are used as performance targets, rather than restrictions.

The final step sees the team monitor and modify portfolios to ensure ongoing enhanced returns.

When a change is required, they are not afraid to make it; they believe all holdings in a portfolio should be ‘working hard’.

The team holds approximately 150 manager meetings each year and tends to organise these by sector so that, largely, they interview managers who operate in the same market at the same time.

They also ask for full portfolio transparency.

Before interviewing a fund manager, they normally conduct quantitative analysis and combine results with data from Bloomberg and the market place to determine a fund’s characteristics, as well as pinpoint areas for deeper investigation.

The team believes the key risk is future performance.

However, the past performance of each fund manager can provide clues as to how he or she is likely to perform in a given set of circumstances. Portfolios are monitored daily, ensuring that the team always knows where exposures are.

The fund currently has 14 holdings, with fixed interest (39.7 per cent), UK equities (31.9 per cent) and global equities (15 per cent) the largest asset/sector allocations.

The fund also has an historic yield of 2.7 per cent.

The long-term numbers behind this fund are exceptional, and those invested have been rewarded handsomely.

It is an ideal solution for those who want a safe pair of hands managing their money, regardless of whether times are uncertain or not.

Darius McDermott is managing director of FundCalibre