Fund of the fortnight: Jupiter Absolute Return fund
The lastest: Jupiter Absolute Return fund
Long/short equity is just one of several absolute return orientated strategies that are available to investors. It is also the most common and arguably one of the more straightforward approaches to absolute return investing.
The strategy experienced a difficult period following the financial crisis as managers struggled to contend with high stock and sector correlations driven by the prevailing risk on risk off environment, which was in turn symptomatic of the global economic risks that were evident at the time.
Fund managers responded by running their portfolios towards the lower end of their risk budgets, as a result returns were either very low or slightly negative. However since mid 2012, sector and stock correlations have fallen, resulting in a more conducive environment for long short equity investing, as the market began to focus more on the operating fundamentals of the underlying companies as a driver of share prices. As a result, the return profile of this sector has improved considerably over the last 18 months.
We believe this type of fund currently provides a valuable alternative for investors seeking to manage the risk reward profile of their portfolios. Our preference is for more smaller and nimble funds in this peer group, where the manager also has a track record managing this type of strategy. Amongst these we would highlight the Jupiter Absolute Return Fund.
The Jupiter Absolute Return fund was previously a more macro absolute return orientated strategy run by Philip Gibbs who retired in July 2013. It has since been handed to James Clunie who joined Jupiter from SWIP, where he had success managing a long – short equity fund.
Going forward, the fund will be managed in an identical fashion to Clunies’s old SWIP mandate. It will target a 6% p.a. return net of fees across the market cycle. Although the fund can invest globally it is likely to retain a UK bias – this being the market that the manager knows best.
Typically the portfolio is run with a net long exposure of 25% and a gross exposure (total short and net positions) of up to 110%, with the aim of keeping losses to about a third of that experienced by the broad equity markets. Clunie managed the SWIP Flexible Strategy between September 2009 and April 2013, over this period he demonstrated his ability to manage risk and deliver returns against a demanding and volatile market backrop, significantly outperforming equivalent funds (see UCITS Alternative Long / Short Equity peer group index).
This will be the only mandate Clunie will manage at Jupiter, enabling him to focus exclusively on it. The fund is currently just over £200m in size, so it has ample room to grow and interestingly in a sector where 15-20% performance fees are the norm, in this instance none apply.
Rob Harley is a senior research analyst at Bestinvest.