- Two new analysts have recently joined the highly experienced team
- Value investing has underperformed in recent years but provides diversification
- The manager's long-term performance has been excellent
- 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 Income focuses on undervalued UK companies which could pay a dividend, so the fund can add diversification to an income portfolio. This style bias can mean the fund is out of favour through certain periods of the market cycle, as it has been recently. We think the fund would work well alongside other UK equity income funds with a different style bias to add diversification. The manager operates a concentrated portfolio of less than 40 stocks, and so each position can have a big negative or positive impact on performance and this increases risk.
Ben Whitmore has been managing funds for more than 20 years, and is an expert when it comes to unearthing undervalued companies. He is assisted by value fund manager Dermot Murphy who has eight years’ experience, and the two have been working together for six of these. As well as the Jupiter Income fund, the two run Jupiter UK Special Situations and Jupiter Global Value Equity, using the same process and value bias. Whitmore is also a director at Jupiter, and head of the value equities strategy, a role that we feel is complimentary to his fund management responsibilities.
Whitmore is also assisted by two analysts, Brian McCormick and Ellen Mann, recent additions to the team who joined Jupiter earlier this year. McCormick has five years’ experience, having previously worked at Stewart Investors, while Mann is a graduate.
Whitmore looks to provide investors with income and capital growth, through investing in stocks they believe are not correctly valued by the wider market. This focus on out-of-favour companies is called value investing. Value has struggled over the past five years, but the managers believe it will revert to historic form and deliver great returns in time – although past performance is not a guide to future returns.
The team looks for companies with strong balance sheets, low valuations and which have a different set of risks from others in the portfolio in order to diversify potential returns.
Recent trading activity in the fund has been muted, as the managers like to sell and take profits from stocks that have performed well to invest in new ideas. Due to the prolonged period of value investing underperforming there have been fewer profits to take.
Instead, they have focused on improving the quality of the overall portfolio, selling companies that they consider to have weaker franchises, such as Marks and Spencer, in favour of companies in a similar sector with a stronger brand such as B&Q parent company Kingfisher.
While Whitmore considers Kingfisher to be a good investment, they believe the wider retail sector to be permanently impacted by the recent shift in retail habits related to the lockdown. The managers think that once consumers get used to shopping online many will not move back to traditional bricks and mortar shops.
Whitmore has also added BT and Pearson to the portfolio. They see BT as a beneficiary of the heightened demand for broadband internet, which they believe will continue.
The fund has been impacted by the dividend cuts in the UK, with the yield falling by around 40% on previous calculations. The portfolio is now yielding around 3.5%.
The managers remain confident on the dividend outlook, and consider many companies will return to paying dividends over the next two years although there are no guarantees. The managers are wary of chasing yields that look high today but are unsustainable and prefer to focus on the long-term. Yields are variable, not guaranteed and should not be seen as an indicator of future income.
Whitmore and Murphy run an established value franchise at Jupiter, where they are supported to manage money in a differentiated way. Jupiter is a listed company, traded on the London Stock Exchange. Employees’ bonuses are paid in part in deferred cash, and part in Jupiter shares which are released over time, which encourages a long-term focus, which we believe aligns managers’ goals with that of their investors’.
Last month, Jupiter completed its acquisition of asset manager Merian, following shareholder approval. The Jupiter value team is not directly impacted by the merger but we note that Jupiter will now have a larger UK equities team which could provide a welcome additional source of ideas or challenge.
The Jupiter Income team integrate some environmental, social and governance considerations into their analysis and fund management, focusing on positive engagement with the companies they invest in, and exercising their shareholder rights.
The fund has an annual ongoing fund charge of 0.94% but through HL clients can secure an ongoing saving of 0.34%, reducing the net ongoing charge to 0.60%. Part of this reduction is paid as a loyalty bonus, which could be taxable if held outside of an ISA or SIPP wrapper. The HL platform fee of up to 0.45% a year also applies.
Value investing has been out of favour for some time as growth stocks have led the market rally of the past decade. As a result, this fund has struggled to keep up with the FTSE All Share index since 2017*, as the gap between growth and value investing widened further.
|Annual percentage growth|
| July 15 -
| July 16 -
| July 17 -
| July 18 -
| July 19 -
Past performance is not a guide to the future. Source: Lipper IM* to 31/07/2020.
Against a more specific value-focused index however, the Jupiter Income fund has outperformed since Whitmore took over management of the fund in 2013.
Investors should be mindful that the Wealth Shortlist is designed to enable clients to build a well-diversified portfolio, across asset classes, investment styles and geographies. The Wealth Shortlist is for clients who know how to build a portfolio, and have identified a requirement for their personal investment goals. In keeping with our remit, the Shortlist contains value-biased funds, which have been out of favour in recent years as growth investments have led the market rally.
The value-biased funds on the Wealth Shortlist may have underperformed their sector peers over the short term because of their style, but over the longer term, and particularly during periods where value returned to favour, our analysis suggest these have long-term potential. Whitmore has outperformed the All Share over his career for example, and we retain conviction in his ability to outperform over the long term though remember there are no guarantees.