- Ariel Bezalel is a high profile, talented manager who has decades of experience of investing in bond markets
- 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
- 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
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 25 years. Bezalel was joined on the fund by co-manager Harry Richards in April 2016. Richards now has 11 years of investment experience having joined Jupiter in 2011. 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 evolve. 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 increase their investments 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.
In recent years the fund’s investments in high yield corporate bonds have been steadily increasing and now account for around 52% of the fund. This has largely been at the expense of emerging market government bonds which has been reduced. In terms of sector exposure, financials, consumer and communication services have the largest weightings within the fund. Together they account for 43%.
The fund’s duration currently stands at 7.8 years. Duration estimates the sensitivity of a bond fund to changes in interest rates and is measured in years. The longer a bond’s duration, the more sensitive it is to interest rate movements. Bezalel has increased duration so far during 2022 as he feels that investors are expecting interest rates to rise more than they actually will, particularly over the longer-term. If this turns out to be correct, having a higher duration position could add to future returns. However, there are no guarantees this will happen, and it could detract from performance if interest rates rise more than expected.
Bezalel is mindful of a number of risks and expects the UK to go into recession in the coming months. A recession is when the economy shrinks in size for more than two quarters in a row. While he is confident there will be a recession, how bad it will be is now the big debate amongst the team at Jupiter. He and Richards note that a lot of economic data is negative, with slowing housing markets, high inflation and interest rate rises being seen across the globe. All of these are bad for the economy and in turn, investment markets.
Because of their concerns, the team currently have a preference for bonds issued by companies from the consumer sectors and dislike bonds issued by companies in the utilities and materials sectors.
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.
ESG Integration
Jupiter’s approach to ESG is fund manager led, so the fund managers themselves are responsible for implementing ESG in their investment analysis. While managers are given freedom in how they incorporate ESG into their investment decisions, they are frequently challenged on their ESG analysis by an in-house Governance & Sustainability team.
We like that the fund managers are not being forced to adopt ESG policies that they may not agree with or may not fit with their investment style.
Ariel and Harry have incorporated ESG factors into their analysis and have an ESG materiality risk score for all bonds that they assess. They have also launched additional products where exclusions based on ESG criteria have a bigger impact on what bonds they invest in. Overall it is good to see that the managers are taking ESG risks seriously and do incorporate these into their bond selection. For this particular fund though, the risk-return profile of potential investments is the most important thing.
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 fund's flexible approach has meant that over the long term it has tended to outperform its peer group. 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. In total since launch, the fund has delivered a return of 102.6%* to patient investors, compared with a return of 87.3% for the IA £ Strategic Bond peer group. Please note that this data is for Class L units in order to show performance since the fund was launched. The performance noted below is using Class Z units, which are available to investors with HL and have lower ongoing charges. The flexibility afforded to Bezalel 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. Past performance is not a guide to the future.
Over the past year to 31 August the fund has lost more value than the sector’s peer group average loss of -11.11%, lagging by 2.0%. The biggest losses within the fund came from the developed market government bonds they hold. As interest rates have risen significantly throughout 2022, these bonds have lost value. The funds’ investments in high yield corporate bonds have also fallen in value, although they have fallen less than the wider market for these types of bonds, which has helped to keep overall losses nearer to the peer-group average.
Over five years to 31 August 2022 the fund has also underperformed the sector’s peer group average, providing a return of 1.61% compared to 2.72%. While this is a little disappointing, it has been a challenging time to invest in bond markets. During that five year period there have been times when the fund was ahead of the sector’s peer group average by similar amounts. We think the fund continues to provide something different and offers diversification to investments in company shares.
While there are no guarantees how the fund will perform in future, we think the prospects are good with Bezalel and Richards at the helm. We think they are talented managers with plenty of experience in a sector where experience counts.
Annual percentage growth
Aug 17 - Aug 18 | Aug 18 - Aug 19 | Aug 19 - Aug 20 | Aug 20 - Aug 21 | Aug 21 - Aug 22 | |
Jupiter Strategic Bond | -0.27% | 9.41% | 2.66% | 4.40% | -13.11% |
IA £ Strategic Bond | -0.48% | 6.47% | 3.23% | 5.64% | -11.11% |
Past performance isn't a guide to the future. Source: *Lipper IM to 31/08/2022.
FIND OUT MORE ABOUT JUPITER STRATEGIC BOND, INCLUDING CHARGES
VIEW JUPITER STRATEGIC BOND KEY INFORMATION DOCUMENT
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