The launch of the Jupiter Absolute Return Fund in December last year attracted much investor interest. It aims to provide a positive return each year as well as controlling risk and sheltering capital. Philip Gibbs’s reputation for calling the economic environment is renowned in the industry so we had high hopes. The fund has got off to a slow start but we remain positive about the prospects.
Whilst the fund has the ability to invest in a wide spectrum of assets, Philip Gibbs’s main area of expertise is financial stocks, so he tends to use these when constructing his portfolio. Unfortunately the last few months have been difficult for many shares in this sector, so although Philip Gibbs has identified some good companies, there have been fewer opportunities to make money.
He is also concerned about market volatility and has chosen to maintain a defensive stance until he sees signs of sentiment moving in a clear direction. It's easy to form a negative outlook of the current environment given the issues of sovereign debt, unemployment and austerity measures. Indeed, this might seem a good reason to short (please see below for explanation) various sectors in anticipation of market pessimism. However, Philip Gibbs’s view is that valuations of equities in general (and certain sectors specifically) represent good value. In other words, no matter how bad the backdrop, there is an opportunity to buy if the price is cheap enough.
Philip Gibbs has typically made money from getting the big calls right – being invested in the market when it's rising and preserving capital at the right moments, although he won’t get it right every time. In recent months markets have been volatile but trading in a relatively narrow range. Therefore his strategy is to await signs of a significant sentiment change before investing more fully. Given he has proven adept at timing the market in the past we are happy to see him biding his time waiting for the right opportunities to come along.
Exposure to equities is therefore selective and geared towards healthier, less indebted areas such as the Far East and Norway. Given Philip Gibbs’s expertise in financial stocks it's these which currently make up the exposure, including HSBC and Norway’s DnB Nor. Short equity positions are also limited and centred on European stocks where he sees the most pressure from economic problems.
Jupiter Absolute Return Fund
| Initial charge | 5.25% |
|---|---|
| Initial saving | 5.00% |
| Annual charge | 1.25% |
| Annual saving | 0.10%* |
*Annual saving is not available in the SIPP
Find out more about this fund including how to investOne area where Philip Gibbs has a far larger short position is Japanese government bonds where he feels yields are too low. He believes yields will rise (and prices will fall) to reflect the nation’s high level of sovereign debt. This exposure has also hurt performance in the short term, but he is happy to maintain the position believing the current low rates are unjustified and downside is limited.
Eight months is a short period over which to look at any manager’s performance, and although initial results have been disappointing, Philip Gibbs’s has an excellent long-term record of judging the economic picture accurately. So far with this fund he has, on the whole, made reasonable decisions during a time that market sentiment has wavered. It has resulted in a quiet period, but Philip Gibbs often operates in an opportunistic manner, restructuring his portfolio rapidly in response to changing sentiment. When he does the results can be impressive, so the fund remains firmly on the Wealth 150 list of our favourite funds in each sector.
Please note absolute return funds such as this place emphasis on controlling volatility and risk so should be expected to underperform traditional equity funds when markets are rising.
If you are considering an investment please ensure you read the fund key features which contain more information about the risks and the performance fee.
Rob Morgan
Analyst
Shorting - an explanation
Traditionally investors buy assets they believe will rise in value. Shorting is different. The principle is that the fund manager borrows shares he believes will fall in value and then sells them, hoping by the time he needs to repay the lender the share price will have fallen. The difference between the two prices is the profit or loss. For example:
1. Manager borrows 10,000 shares and sells them for £2 each = £20,000.
2. Purchases these shares six months later at 80p each, cost = £8,000.
3. Profit = £12,000
Had the share price risen by the same amount, it would have cost more to purchase the shares than received from selling them, resulting in a £12,000 loss. Shorting can be effected in a number of ways; fund managers generally short via contracts with a broker rather than actually taking delivery of the shares. This example also ignores transaction and other costs, but it hopefully explains the principle.
