Each week we highlight one of the funds from our Wealth 150 as our Fund in focus. The Wealth 150 represents what we believe to be the best funds across the major sectors. This week Kate Marshall, Fund Analyst, looks at the Jupiter UK Growth Fund.
The UK economy grew at its fastest pace in three years in the third quarter of 2013. Three successive quarters of economic expansion indicates the UK could be firmly on the road to recovery. Steve Davies, co-manager of the Jupiter UK Growth Fund, believes there are three pieces of evidence suggesting the revival in the UK's economic fortunes looks set to continue throughout 2014.
Rising UK wages
Evidence that UK wages are beginning to outpace inflation is demonstrated in a report on take-home pay from Vocalink, one of the country's largest payments systems companies, according to Steve Davies. In its latest report, take-home pay rose 2.4% in the three months to November 2013. In the same month, UK consumer price inflation fell to a four-year low of 2.1% (and has since fallen to 2% at the end of 2013). As such, Steve Davies believes many in work are seeing their pay rise faster than the cost of living which could boost consumer spending.
Elsewhere, unemployment fell to 7.4% in November, its lowest level since 2009. More people in employment could also bode well for consumer spending levels. Steve Davies believes this provides grounds for optimism for investors in domestically-focused businesses, where the fund is biased, such as banks, retailers and house builders.
Growing business investment
Steve Davies notes business investment has also picked up, rising by an estimated £600 million (or 2%) in the third quarter of 2013 compared to the previous three months. He is aware this rise is lower than the equivalent figure in 2012, but he expects momentum to continue to build in this area in businesses.
The UK economy could still face short-term headwinds while it continues to recover, however, Steve Davies and co-manager, Ian McVeigh, are optimistic in their long-term outlook. In-keeping with the above factors, the fund remains heavily biased towards consumer-related sectors such as retailers, where stocks including Dixons Retail and kitchen supplier, Howdens Joinery, are held.
Source: Jupiter. Data correct as at 30/11/13.
Few changes have been made to the portfolio over the past year, though the managers recently took the opportunity to sell the fund's holding in retailer Next after making a significant profit. According to Steve Davies and Ian McVeigh, the company's management team have brought value to the business even in difficult market conditions. The stock was sold on the basis it had reached its full valuation.
Around a third of the portfolio is invested in the financials sector, with a significant proportion invested in banks, including Lloyds, RBS and Barclays, which have performed strongly in recent years. The managers believe banks have come a long way since the financial crisis to reduce excessive pay and to more evenly split reward between staff and shareholders.
The managers have also utilised some of their flexibility to invest overseas, holding shares such as Adidas, Apple and BMW. In their view, these companies with strong global brands are likely to perform well in the coming decade, helped by strong emerging market demand.
2013 was a good year for the fund which outperformed the sector average by 7.1%. Longer term performance has also been impressive; over the past ten years the fund has grown by 209.7% compared with 125.6% for the average fund in the peer group*. Please remember past performance is not a guide to future returns.
This is a high conviction, concentrated portfolio with an economically-sensitive bias. As such, the fund tends to underperform in falling markets and can be volatile relative to the wider market. Performance has previously been superb in rising markets, more than making up for any short-term underperformance. In our view, this fund is a good choice for investors who share the managers' positive outlook on the UK economy. We hold Ian McVeigh and Steve Davies in high regard and this fund features on the Wealth 150 list of our favourite funds across the major sectors.
|Annual % growth|
|January 09-10||January 10-11||January 11-12||January 12-13||January 13-14|
|Jupiter UK Growth||36.2||22.0||-12.2||31.8||31.0|
|IMA UK All Companies||30.3||18.0||-7.1||15.6||23.9|
Past performance is not a guide to future returns. Source: Lipper IM *Figures to 02/01/2014
|Fund manager's initial charge||5.00%|
|HL saving on initial charge||5.00%|
|Net initial charge||0.00%|
|Fund manager's annual charge||1.50%|
|HL annual saving||0.25%|