Jupiter Strategic Bond – September 2020 update

• We think Ariel Bezalel is a talented manager who has decades of experience of investing in bonds
• The fund has performed well over the long term delivering good returns to patient investors
• We think there’s an attractive culture at Jupiter which gives managers autonomy to invest how they see fit
• The fund is on our Wealth Shortlist of funds chosen by our analysts for their long term performance potential

How it fits into a portfolio

The managers aim to generate a combination of income and capital growth in excess of the Strategic Bond sector average over the long term. The fund could add some diversification to a portfolio focused on shares or higher risk bond funds. We expect the fund to deliver stronger relative performance in falling markets.

Manager

The fund is co-managed by Harry Richards and Head of Fixed Income at Jupiter, Ariel Bezalel. We think Bezalel is a talented and experienced bond manager whose economic analysis and ability to select successful bonds within certain sectors has added value for investors. He became manager of the fund in June 2008 and has now worked at Jupiter for the last 23 years. Bezalel was joined on the fund by co-manager Harry Richards in April 2016. The managers also have other fixed income responsibilities but we think they have the support and resources to do a good job for investors.

Process

Bezalel and Richards analyse the state of the economy and use this to help decide where to invest. This involves taking a view on which direction interest rates will move in developed markets to build up a picture of how the economy will develop. Although the managers can invest in bonds from around the world, at least 70% of the fund must be invested in bonds that are bought and sold in British pounds or hedged back to Sterling. They can also use derivatives which if used increases risk.

Bezalel and Richards are willing to take more risks when they’re positive on markets. So at times they will invest in higher-risk areas like emerging markets and high-yield bonds. But when the outlook is more uncertain they can adopt a more defensive approach and might invest more in government or higher quality corporate bonds in an effort to help shelter the portfolio from large drops in value.

The managers continue to focus on identifying the bonds of companies with resilient business models and stable cash flows that will see them through to the other side of the current crisis. They’ve recently topped up their positon in Netflix on the basis of the company’s cash flow numbers and chances of securing an investment grade rating in the future.

Culture

We think the culture at Jupiter is attractive. Fund managers are given autonomy to invest the way they see fit, but with an appropriate level of challenge from others in the business.

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.

Jupiter is also placing increasing importance on environmental, social and governance (ESG) issues, and has a governance & sustainability team that helps fund managers engage with companies and vote on ESG matters.

Cost

The fund has an annual ongoing fund charge of 0.73%, but through Hargreaves Lansdown you can secure an ongoing saving of 0.19%. This means you’ll pay an ongoing charge of 0.54%. 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.

Performance

The funds flexible approach has meant that over the long term it has tended to outperform its peer group. This flexible approach means the fund could perform differently to some others, but we back Bezalel’s skill and experience to reward investors over a longer time horizon.

The fund has performed particularly well during falling markets, sheltering its value better than others in the sector, but has marginally outperformed in rising markets too. The fund lost value over February, March and April but fell by less than its strategic bond peer group as the coronavirus unsettled bond markets. Since the start of May the fund has regained some ground in the recovery, but not as much as the peer group average*. This is a very short timeframe to compare performance over though and isn’t a guide to the future.

The managers retain a cautious economic outlook and believe inflation is likely to remain subdued. Bezalel and Richards point to the tightening of lending standards by US banks, weak employment data and the approaching end of government support schemes as contributing factors to this.

Past performance is not a guide to the future Source: *Lipper IM to 31/08/2020

Find out more about Jupiter Strategic Bond, including charges

Jupiter Strategic Bond Key Investor Information