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Jupiter: will value stocks continue to underperform?

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.

Investors adopting a growth approach to equity investing are likely to have been well-rewarded in recent years. As the name suggests, growth stocks are expected to deliver above-average growth as measured by metrics such as earnings or cash flow. Value investors, on the other hand, seek lowly-valued companies that may have fallen on hard times, but where the investor sees improvement on the horizon. In recent years, growth companies have tended to outperform their value-orientated counterparts.

This trend could be attributed to several factors. Amid economic turmoil many investors have favoured the perceived safety of high-quality growth stocks, favoured for their stable earnings and cash flows. Given their seemingly stable rate of earnings and profit growth, many of these companies pay regular and reliable dividends. They have therefore also appeared increasingly attractive to income-starved investors who, in a low interest rate environment, are earning little interest from cash deposits and fixed income investments.

Conversely many investors have shunned value stocks perceived to be lower-quality and whose earnings are often reliant on the state of the economy. Many economically-sensitive companies, such as those in the oil, resources and banking sectors, could be categorised here having suffered a particularly poor spell of performance.

There has been an increasing divergence between the two styles of investing over the course of this year. Many funds adopting a value-orientated investment approach have therefore underperformed those implementing a growth strategy.

The Jupiter Income and Jupiter UK Special Situations funds managed by Ben Whitmore are a case in point. As a value-orientated and contrarian investor the manager has focused his attention on undervalued areas of the market, meaning the funds have struggled against their growth-focused peers over the course of this year.

In Ben Whitmore's view higher-quality growth companies are now very expensive following a period of strong performance. This includes consumer goods companies, for example, where both his funds hold a lower weighting than the wider market.

The manager suggests considerable value can only currently be found in a narrow range of sectors; oil, mining and banking. That said he doesn't want his funds to be concentrated in a small number of sectors, so he has invested in a diversified list of attractively-valued companies.

In the oil & gas sector the manager owns a large position in BP in both funds, although he has avoided exploration and production oil companies, which are laden with debt. He is less positive in his outlook for the mining sector, particularly iron ore producers, although he invests in Anglo American, a more diversified miner, in both funds.

While there is some overlap between the two portfolios, the Income fund is naturally tilted towards higher-yielding companies, such as British American Tobacco and HSBC. At present the portfolio is yielding 3.8% (variable and not guaranteed). The UK Special Situations fund has greater exposure to companies with lower yields or less potential for dividend growth, but more potential for capital growth. Current positions include Balfour Beatty and Barclays.

The concentrated nature of both funds means each holding can make a significant impact on returns, however, this does add risk.

Our view on these funds

The Jupiter Income and UK Special Situations funds have been through a short-term period of lacklustre performance against the wider UK market. However, Ben Whitmore has built a successful long-term track record. He has historically focused on running UK growth portfolios, having managed UK equities since 2001. He took over management of the UK Special Situations fund in November 2006, since which point the fund has grown 98.1%* against 54.3% for the IA UK All Companies sector, although please remember past performance is not a guide to future returns.

The manager has a shorter track record managing an equity income portfolio, having taken over the Income fund at the start of 2013. That said his style means he has tended to favour dividend-paying companies when running previous funds. Over his tenure the Income fund has returned 33.1%* against 36.3% for the average fund in the IA UK Equity Income sector.

Percentage Growth TR Def ExD GBP
1/12/10 -
1/12/11 -
1/12/12 -
1/12/13 -
1/12/14 -
Jupiter UK Special Situations 6.78% 17.98% 26.63% 6.41% 1.83%
IA UK All Companies -0.98% 13.64% 23.99% 3.41% 5.48%
Jupiter Income 3.38% 9.02% 21.54% 6.1% 2.58%
IA UK Equity Income 2.11% 12.54% 22.72% 5.51% 6.25%

Past performance is not a guide to future returns. Source: Lipper IM * to 01/12/2015

Presently the funds do not feature on the Wealth 150 list of our favourite funds across the major sectors. While we rate Ben Whitmore as a good fund manager, the UK sectors are highly competitive and we feel we already have a strong line-up of managers in these sectors on the Wealth 150.

Please note with the Jupiter Income Fund the charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.

Find out more about Jupiter UK Special Situations fund and Jupiter Income fund including how to invest

Please read the key features/key investor information document for Jupiter UK Special Situations Fund and key features/key investor information document for Jupiter Income Fund in addition to the information above.

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.

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