Jupiter European: December 2022 fund update

How it fits in a portfolio

The fund aims to grow investors’ money over the long run. The managers of the Jupiter European fund favour the larger, more stable businesses, investing in the ones they believe offer the best growth potential over the long run. They prefer businesses who possess a strong competitive advantage that others will struggle to replicate. We think the fund could be a good choice for exposure to Europe as part of a global investment portfolio, or sit alongside other European funds focused on using different investment styles.

Manager

Mark Heslop and Mark Nichols joined Jupiter from Columbia Threadneedle (CT) in 2019 and have a combined total of over 40 years’ experience investing in Europe. They took over management of the Jupiter European fund in October 2019.

Prior to this, Heslop was a part of CT’s European equities team for 11 years and was appointed lead manager of their European Smaller Companies Fund in 2013. Nichols joined CT in 2015 and became co-manager of the European Select Fund, which currently features on our Wealth Shortlist.

Since joining Jupiter, the managers have built up a team of five investors. This includes Phil Macartney, a fund manager with 14 years’ experience across UK and European companies, Sohil Chotai, an assistant fund manager with 9 years’ experience of analysing European companies, and Nikisha Mistry, who has 4 years’ experience as a European equities analyst.

Macartney is named co-manager on the Jupiter European Smaller Companies Fund and Chotai is co-manager of the European Special Situations Fund. Despite the added responsibility, each of the European funds share a similar investment process, so we feel the managers can comfortably manage their commitment to each.

Heslop and Nichols also view it as team-based approach, so encourage discussions, debate, and the sharing of ideas across each European fund.

Process

The managers aim to identify world class companies across the European continent. These companies need to have unique products or services which others struggle to replicate but also be able to grow steadily over the long term. Identifying companies that have a global reach in regions like the US or Asia is also important, as they are less likely to be as reliant on the state of Europe’s economy. As a result, they’ll tend to invest in a concentrated list of companies they have a high level of conviction in. This means each one can have a meaningful impact on performance, and this increases risk.

The managers focus on holding these companies for the long run in order to benefit from steady growth, rather than trying to time the market or making short-term decisions. The managers generally prefer to keep portfolio turnover low, keeping buying and selling to a minimum. Though, there have been a few changes to the fund this year.

One of the recent changes was the investment in Sandvik. The engineering company specialises in mining and rock excavation, including the manufacturing of the machinery. It’s welcomed some corporate changes and has refocused its mining business, which the team believe could help its potential for long term growth. L’Air Liquide, a speciality chemical provider and Universal Music Group, an entertainment business based in the Netherlands, were also added to the fund.

There have also been some investments the team have reduced. They decreased their investment in pharmaceutical giant Novo Nordisk. The business has seen an increase in demand for three of its new diabetes and obesity drugs, causing their share price to rise, so the managers wanted to take some profits. The investment in Experian was also reduced following some strong performance. Temenos, a banking software company, and DiaSorin, a medial diagnostics and research company, were sold due to reduced conviction in their long term prospects.

Culture

The fund managers at Jupiter are given autonomy to invest the way they see fit. They believe this will benefit investors over the long run, but the autonomy comes with an appropriate level of challenge from others in the business. This business setup allows Nichols and Heslop to focus on fund management, their team, and maintain flexibility.

Each manager is incentivised in line with the performance of their funds over various timeframes. We think this aligns their interests with those of investors and helps the managers to focus on delivering strong performance for clients.

ESG integration

Jupiter’s approach to ESG (Environment, Social and Governance factors) is fund manager led, so the fund managers themselves are responsible for implementing ESG in their investment decisions. Each manager is held to account for their ESG decision making and are frequently challenged on their ESG analysis by the in-house Governance and Sustainability team.

All fund managers at Jupiter receive support from these teams, drawing on their specialist ESG knowledge. Where red flags are raised, the managers go away and investigate. Nichols and Heslop also form their own views on ESG issues and incorporate them into their research, believing them to be important to the long-term quality of a business.

We like that engagement is not delegated to a separate department. Instead, the fund manager who made the decision to invest in the company leads engagement activity directly, allowing more meaningful and relevant engagement. The firm also votes at all shareholder meetings and provides a monthly voting record, available via its website, including rationale where it votes against management. More information about the firm’s ESG policies, voting record and engagement case studies can be found in its annual Stewardship report.

Cost

The ongoing annual charge for this fund is 0.99%. This makes it one of the more expensive funds in the Europe sector. The HL platform fee of up to 0.45% per year also applies.

Performance

Since Heslop and Nichols took over the fund in October 2019, performance has been mixed. The fund held up relatively well during the first two years under their tenure, driven largely by the tailwinds of their preferred style of investing. Though, past performance is not a guide to future returns.

More recent performance hasn’t been as strong though. Over the last 12 months, the fund fell 15.29%* which is significantly more than the broader European index and the average return of peers. Growth fell out of favour with investors, paving the way for value investing. This means that companies considered undervalued, or those undergoing a recovery, held up better. The managers invest a small amount in these types of companies so were unable to benefit from the associated gains.

European markets also continue to be impacted by spiralling inflation, rising interest rates and higher energy costs. This meant that certain sectors including energy, utilities and banks have held up well. The managers tend to be underweight in these sectors, compared to the market, so missed out on the gains from each of the sectors.

There have also been a number of companies in the fund that detracted from performance over the same period.

Grifols, which is a pharmaceutical company focused on plasma therapies, was one of the poorer performing companies this year. It took on more debt during the pandemic and has been under pressure due to the decrease in the usual number of plasma donations they receive. Sportswear and clothing manufacturer, Adidas, and software provider, Dassult Systemes, were also among the worst performers this year.

On the flip side, there have been a number of investments that have held up well and delivered good returns. Novo Nordisk was one of the strongest investments this year, for the reasons noted earlier. Edenred, a payment solutions provider, and Wolters Kulwer, a company that focuses on providing software and business solutions, also helped drive performance.

Annual percentage growth

Past performance is not a guide to the future. Source: *Lipper IM to 30/11/2022.

More about Jupiter European, including charges

Jupiter European Key Investor Information