Asset allocation can be a bone of contention for many investors. Knowing how much of a portfolio to allocate to equities, bonds and cash can be difficult. The level of exposure to each area often depends on attitude to risk. Those in search of higher returns and able to stomach large potential losses would generally hold a high exposure to equities, while those uncomfortable with any loss would hold cash.
Funds within the mixed investment sectors are limited in their equity exposure. For example, funds within the IA Mixed Investment 0-35% Shares sector are able to hold no more than 35% of the fund in equities and can hold none at all if they wish. These funds can be a useful tool when managing equity exposure.
One such offering is the Jupiter Distribution Fund, managed by Rhys Petheram and Alastair Gunn. Rhys Petheram is largely in control of the fixed interest portion of the fund with Alastair Gunn responsible for the equity investments. Both were appointed lead managers of the fund in February 2012 having been involved with the fund since July 2010. Since their involvement performance has been strong; the fund has returned 44.6% compared with 28.0% for the average fund in the sector*. Please note past performance is not a guide to future returns.
Performance of the Jupiter Distribution Fund over the managers' tenure
Past performance is not a guide to future returns. * Lipper IM to 02/03/15
|Annual percentage growth|
| Mar 10 -
| Mar 11 -
| Mar 12 -
| Mar 13 -
| Mar 14 -
|IA Mixed Investment 0-35% Shares||6.49%||3.62%||6.94%||2.10%||6.30%|
Our analysis suggests performance has been aided by the fund's higher exposure to shares relative to its peers, while successful stock picking has also contributed. The managers' avoidance of shares in iron mining companies has also benefitted the fund as the price of iron ore has been falling since February 2011, hurting the profitability of those involved in this area.
The fund is currently holding close to the maximum level of equities permitted and is utilising any cash within the fund to top up equity holdings on market weakness. Alastair Gunn feels lower food and energy prices, along with wage growth, provides a supportive backdrop for the UK economy. He is therefore focusing equity investment on companies which perform better when the stock market is stronger.
In Rhys Petherham's view, the current environment calls for a conservative approach to corporate bond investing. He seeks bonds in companies he considers to be reliable and which are actively reducing their level of debt. As he expects volatility in bond markets to increase, he has positioned the bond portion of the portfolio defensively and it is currently almost entirely invested in lower-risk investment grade bonds, although he retains the flexibility to invest up to 10% in higher-risk high yield bonds. The fund's bond positioning has been beneficial to the fund's performance.
Asset allocation of the Jupiter Distribution Fund
Source: Jupiter as at 28/02/2015.
Our view on this fund
We feel this fund is a reasonable long term choice in the sector. However, we prefer to invest with managers who have more experience. While we do not have any major concerns about the managers or their approach, the Wealth 150 is reserved for funds in which we have the highest conviction. We will continue to monitor the fund and will keep investors informed if our views change.