Jupiter Income: August 2022 fund update

• The fund is managed by Ben Whitmore who is an experienced value investor
• The process focuses on investing in fundamentally good companies that are out of favour
• We think Ben Whitmore has the experience, skill and resources to deliver good long-term returns to patient investors
• The fund features 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, mainly UK companies which could pay a dividend. This approach can mean the fund falls out of favour through certain periods of the market cycle. The manager runs a concentrated portfolio of 35-45 stocks, so each position can influence performance for good or bad which can increase risk.

We think the fund would work well alongside other UK equity income funds as it has quite a distinct value style bias which could add diversification to either an income focused or more general portfolio.

Manager

Ben Whitmore has been managing funds since 1996 and is an expert when it comes to unearthing undervalued companies. He is assisted by Dermot Murphy, and the two have been working together for a number of years. As well as Jupiter Income, 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 complementary to his fund management responsibilities. Whitmore and Murphy are also supported by analysts Brian McCormick and Ellen Mann in the value team.

Process

The fund aims to provide investors with income and capital growth over the long term by investing in stocks that the managers believe are undervalued by the wider market. This focus on out-of-favour companies is called value investing. This style has struggled in recent years as the market has favoured companies with high growth potential, but in recent months value investing has had more of a resurgence, though it’s still some way behind the growth style over that period.

The team look for companies with strong balance sheets, low valuations and a different set of risks from others in the portfolio in order to diversify potential returns. There are companies from a variety of sectors and industries within the fund. Holdings are chosen on their individual merits and are unrelated to how the index looks. The managers look to uncover unloved stocks capable of recovery and paying increasing dividends. As such there will always be an element of uncertainty in the investment case, but this should be reflected in the price of the shares.

The managers’ contrarian approach can mean the fund looks quite different to the index at times. Whitmore is also willing to invest in some companies with a lower yield than some peers if he identifies the potential for a recovery in the share price.

A key characteristic of companies in the portfolio and a feature of the investment process is balance sheet strength. This allows temporarily weakened or out of favour companies to remain solvent for longer, whilst they hopefully recover.

In recent months, Whitmore has taken profits from some of the fund’s investments in defence companies after a period of strong performance. He’s also been topping up some existing holdings, including HSBC. Whitmore thinks the valuation gap between the most expensive and the cheapest shares in the UK market remains too wide and that over time it will converge closer towards the long-run average.

Culture

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. This encourages a long-term focus, which we believe aligns managers’ goals with those of their investors.

Jupiter acquired Merian Global Investors in July 2020. While the Jupiter value team is not directly impacted by the acquisition, Jupiter now has a larger UK equities team which could provide a welcome additional source of ideas or challenge. The integration has caused some disruption though and we are monitoring the situation closely.

ESG integration

Jupiter’s approach to ESG analysis is fund manager led, so managers themselves are responsible for integrating ESG into their investment process and decision making. We like that engagement isn’t delegated. The fund manager who made the decision to invest in the company leads engagement activity directly, allowing for more meaningful and relevant engagement.

Jupiter 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.

The team typically applies a materiality-based approach to ESG integration, meaning they focus on ESG risks most material to each company. The firm also subscribes to several third party data providers which offer information that fund managers can use in their research. Managers are held to account for their ESG decision-making and are frequently challenged on their ESG analysis by the in-house Governance & Sustainability team. The team is also available to provide specialist ESG knowledge.

Cost

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. Part or all of the annual charge is taken from capital rather than income generated, which could boost income, but reduces the potential for capital growth.

Performance

Ben Whitmore has managed this fund since January 2013. From then until the end of July 2022 the fund has delivered returns of 89.25%*, ahead of the 86.83% return delivered by the FTSE All Share index. Whitmore has also managed various UK equity value/income portfolios over many years prior to this. More recently he has also managed global value portfolios. Over his career he has performed well, significantly outperforming the FTSE All Share index. Past performance is no guarantee of future returns.

Many UK Equity Income funds have the potential to hold up better than the wider market in adverse market conditions. But in 2020 the speed and scale of the COVID crisis had an immediate impact upon the payment of dividends. Some of the natural hunting grounds for income, such as banks and oil, were hit hard as the pandemic reduced demand for travel and caused significant falls in GDP across all economies. Investors sought out ‘safe haven’ investments and, in this environment, resilient growth companies performed better.

More recently, over the last 12 months to the end of July 2022, the fund returned 7.45%, compared with the FTSE All Share’s return of 5.51%. Our analysis suggests that the fund’s positions in oil & gas company BP, and defence company BAE Systems have been among the largest positive contributors to performance. The defence sector has been back in the spotlight after Russia’s invasion of Ukraine and BAE Systems is a significant player in this global market. The current crisis has so far had a positive effect on BAE's growth, as it expects key customers to increase defence spending.

We expect the fund to hold up better in a falling market, but to lag a rising market. We think Ben Whitmore has the experience, skill and team resources to deliver good long-term returns to patient investors, although there are no guarantees. All investments fall as well as rise in value, so investors could get back less than they invest.

Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2022.

Find out more about the Jupiter Income, including charges

Jupiter Income Key Investor Information