Jupiter Global Value Equity: October 2023 Fund Update

In this fund update, Investment Analyst Aidan Moyle shares our analysis on the manager, process, culture, ESG integration, cost and performance of the Jupiter Global Value Equity fund.

• Ben Whitmore is a specialist in finding unloved companies with recovery potential
• His team use the same disciplined approach across all the regions they invest in
• Performance since the fund’s launch has been held back by its value style being out of favour, but more recently this trend has started to reverse
• This fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

Jupiter Global Value Equity aims for long-term growth by investing in undervalued companies with recovery potential. That makes it different from many other global funds that focus on companies with high-growth expectations, and we think the two styles could complement each other in a portfolio. North American companies make up less of this fund than many other global funds, which means it could provide international diversification to an adventurous portfolio.

Manager

Ben Whitmore is an experienced investor. He joined Jupiter in 2006, having previously worked at Schroders managing UK companies funds. At Jupiter, he’s also managed the Jupiter UK Special Situations Fund since 2006 and the Jupiter Income Trust since 2013. Whitmore is also Jupiter’s Head of Strategy for Value Equities. Given the overlap in process and approach, we think he’s able to devote enough time to each.

Dermot Murphy is co-manager of the fund alongside Whitmore. He joined Jupiter in 2014 and is part of the Value Equities Team. He has worked in the industry for a decade and previously worked at Fidelity as a building materials analyst. Although we don’t doubt Murphy’s skills, our main conviction lies in Whitmore. The managers also benefit from the support of two dedicated equity analysts.

We admire the managers’ disciplined approach and commitment to their style, even when it’s faced strong headwinds. It can take courage and perseverance to invest the way they do, and we think they have both in abundance. Combined with Whitmore’s strong, long-term track record, that’s why the fund is on the Wealth Shortlist.

Process

Whitmore and Murphy’s investment philosophy stems from the idea that the highest returns come from buying shares with the lowest valuations. That’s why the managers hunt for companies whose share price, in their opinion, doesn’t reflect their true worth and so can be bought at an attractive price. The reason why they are undervalued varies from company to company, but it can often be the result of poor management decisions, financial or wider industry pressures. It’s important to remember that this approach can take time to come to fruition though, so it requires patience.

Many of these shares are cheap for a reason and face a gloomy future, often referred to as ‘value traps’. The managers aim to avoid these and only buy quality companies which they believe have the potential to recover. To value a company, they look closely at the strength of the business, its financial health and its long-term average share price and compare that to the current share price.

This research results in a portfolio of around 35-55 holdings, which is a relatively concentrated approach. This means each investment can contribute significantly to overall returns, but it can increase risk. Currently the managers invest in 54 individual holdings. Over half of the fund invests in larger companies with the remainder spread across medium-sized and higher-risk smaller companies. The majority are from developed regions like Europe, the US and Japan, but the managers also invest in higher-risk emerging markets.

The managers’ style means they tend to invest quite differently to the broader global stock market. For example, they have lower exposure to ‘growth’ sectors such as technology and healthcare. In contrast, they invest a lot more in companies whose fate lies in the hands of the consumer, such as Harley Davidson.

Over the past 12 months, the managers have invested in some new companies, one example being the US real estate investment trust (REIT) Paramount. REIT’s and other real estate companies have struggled since interest rates increased in 2022 and Whitmore believes there are opportunities in the struggling sector. Paramount is in an enviable position where they have strong balance sheets as well as no debt on some of their properties. Whitmore believes there is good upside potential with limited downside. Swiss luxury watch maker the Swatch group and French aerospace company Dassault Aviation were also added.

In contrast, Irish bank AIB was sold after strong performance. Whitmore believes there are better opportunities in banks outside of Ireland and instead currently favours UK bank Barclays. Whitmore also reduced their exposure in oil companies BP and Shell. Both have had periods of strong performance and have therefore been trimmed.

Culture

Jupiter is a well-known asset manager and part of the FTSE 250. Fund managers are given autonomy to invest the way they see fit, but with an appropriate level of challenge from others in the business. The business setup allows Whitmore and Murphy to focus purely on fund management and take a long-term view, which is important as their value style of investing often requires patience.

Fund managers at Jupiter are 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.

We continue to monitor the culture at Jupiter after a number of senior management changes following the acquisition of Merian Global Investors in 2020.

ESG integration

Jupiter’s approach to Environmental, Social and Governance (ESG) is fund manager led, so the fund managers themselves are responsible for implementing ESG in their investment decisions. They typically approach ESG issues with a materiality-based approach, meaning they focus on ESG risks most material to each company. The firm also subscribes to several third-party data providers (including Sustainalytics, RepRisk, ISS and MSCI) which offer information that fund managers can use in their research. Where red flags are raised, the managers investigate. The firm offers a small number of exclusions and sustainability-focused funds, including the longstanding Jupiter Ecology fund.

Managers are held to account for their ESG decision making and are frequently challenged on their ESG analysis by the in-house Governance and Sustainability team. The team is also available to provide specialist ESG knowledge.

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.

While ESG considerations are integrated into the idea generation process, this fund is not an ESG focused fund. This means it might invest in stocks that could be considered ESG sinners.

Cost

The fund usually has an annual ongoing charge of 0.93%, but we’ve negotiated a 0.40% saving so it’s available to HL clients for 0.53%. We think this is a great price to access Whitmore’s best global ideas. The HL platform fee of up to 0.45% per year also applies.

Performance

Performance has been mixed since the fund launched in March 2018. Over this period, the fund returned 45.17%* vs 53.37% for the IA Global sector average. Remember that past performance isn’t a guide to future returns.

The managers’ ‘value’ style was out of favour for some time and is the main reason for the underperformance. More recently this trend has started to reverse following the rise in interest rates to battle inflation. This has led to investors avoiding companies with high growth potential, and instead favouring more value orientated companies. Since the beginning of 2022 when central banks started rising interest rates the fund has returned 18.00% vs 0.58% for the IA Global sector average. This level of outperformance is greater than we would expect under normal market conditions, however, it reflects the managers’ style being in favour for much of this period.

Holdings like Turkish bottle company Coca-Cola Icecek, tax preparation company H&R Block and information technology infrastructure company Kyndryl Holdings have been some of the strongest performers more recently. Coca-Cole Icecek reported very strong half-year results which confirmed how well the company is managed. They reported the highest revenue and profit per case sold in over 10 years. Whitmore has used this strong share price rise as a chance to reduce their holding.

Not all their investments did well though. American retailer Sally Beauty Holdings, German pharmaceutical company Bayer AG and British communication company WPP Plc have been some of the weaker performers more recently. Sally Beauty share prices have fallen as investors are worried for the outlook of the US consumer and this may lower demand for Sally Beauty products. Whitmore believes that the stock market is being overly harsh as the company had solid third-quarter earnings and remains on course to meet their full year earnings guidance.

Past performance isn't a guide to the future. Source: *Lipper IM to 30/09/2023.

Find out more about Jupiter Global Value Equity Fund including charges

Jupiter Global Value Equity Fund Key Investor Information