Jupiter Absolute Return - a good diversifier

Dominic Rowles | Thu 24 May 2018

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• We regard James Clunie as a knowledgeable and experienced fund manager
• He’s found opportunities in the UK and in some emerging markets
• We would like to see the fund perform more consistently before considering it for the Wealth 150

Our View

Absolute return funds can be a great way to diversify your portfolio. Their aim is to minimise the impact of falling stock markets, meaning they can perform quite differently from more traditional funds. They come in all shapes and sizes, so it is important you fully understand a manager’s strategy before investing.

James Clunie manages the Jupiter Absolute Return Fund with a long/short strategy. He invests in companies with the potential to perform well (long positions). And he enters ‘short positions’ which allow him to benefit from falling share prices. This strategy relies on him making the right calls. If he gets it wrong, the fund will perform poorly.

We rate the manager’s knowledge and experience. He sees the world in a different way to many other fund managers and his fund is uniquely positioned. We think this makes it a good diversifier. That said, the fund’s performance has been inconsistent over the past few years. We would like to see this improve before considering it for the Wealth 150+ list of our favourite funds in the major sectors.

Where is the manager finding opportunities?

Within the long portfolio, the manager looks for good quality companies that other investors have fallen out of love with. This gives him the chance to spot good investments missed by others.

The fund is currently biased towards the UK. Brexit uncertainty has held back the share prices of UK companies sensitive to the health of the economy. James Clunie thinks this has made them attractively valued. The fund’s largest investments include oil & gas giant BP and utilities company Centrica.

He is also finding value in some emerging markets. He thinks Russian companies look particularly good value. Investments in this area include large Russian bank Sberbank. Investors should note that emerging markets are higher-risk than their more developed counterparts.

In contrast, US share prices have risen faster than their earnings, and James Clunie thinks many are now too expensive. He has taken ‘short’ positions in many of America’s best known companies, including electric car company Tesla and fast-food chain McDonalds.

The manager also uses derivatives to help provide some shelter during volatile periods. But this strategy doesn't always work and increases risk.

How has the fund performed?

The long portfolio saw some success over the past year. Investments in large UK oil & gas and mining companies returned to favour, buoyed by rising commodity prices. The fund also benefited from the strong performance of an investment in Burford Capital, a company which finances corporate legal cases in exchange for a share of the settlement.

Gains from the long portfolio were outweighed by losses in the short portfolio. US technology companies performed well over the past year and the fund’s short exposure to this area dragged on performance. A short in online streaming company Netflix proved particularly costly as excitement over the company’s potential intensified, and its share price rose strongly. Despite this, the manager continues to believe Netflix’s share price is at an unsustainable level and retains his short exposure.

Past performance is not a guide to the future. Source: Lipper IM to 30/04/2018.

The manager has the flexibility to invest in high yield bonds. These carry a greater risk of default than investment grade corporate bonds.

Please read the Key Features/ Key Investor Information in addition to the information above.

Find out more about this fund including charges