Jupiter European – new managers take the reins
Kate Marshall | Wed 09 October 2019
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- Mark Nichols and Mark Heslop took over the fund on 1 October
- Alexander Darwall has stepped back from the fund's management
- Nichols and Heslop will gradually put their own stamp on the portfolio, expected to be complete by the end of the year
Our view
Mark Nichols and Mark Heslop took over management of the Jupiter European Fund on 1 October. We recently caught up with Nichols to find out their plans for the fund and what they intend to change.
The new managers have some similarities with the fund's predecessor, Alexander Darwall. They both look for quality companies with the potential for sustainable growth, with a competitive advantage that others struggle to replicate.
But there are also some differences between the way they invest. This means the fund will eventually look quite different to the way it's currently invested. These changes won't happen overnight, but existing investors should ensure the new managers' approach is right for them and continues to meet their objectives.
It's always disappointing to see such a well-established and successful manager step back from a fund – Darwall added significant value through his stock picking over a long period of time. That said, we think Nichols and Heslop have a respectable track record investing in Europe and the potential to deliver good returns for investors.
They'll work as part of a smaller team at Jupiter, compared with their previous team at Threadneedle. This means they'll have less resource, but we like the autonomy fund managers have at Jupiter, and believe they're well-incentivised to perform.
At the moment we're not considering the fund for the Wealth 50. We currently have greater conviction in other managers in the Europe sector, who have longer track records and delivered impressive levels of outperformance. Nichols and Heslop are also still in the process of building their team, so we'd like to see how things progress once the team's set up and settled. We'll continue to monitor the fund and keep investors up to date if our views change.
Who are Mark Nichols and Mark Heslop?
Nichols has 18 years' experience analysing and investing in European companies, while Heslop has 20.
Nichols ran his first fund at F&C from 2011 – the European Growth & Income Fund. He joined Threadneedle in 2015 and subsequently became co-manager of the European Select Fund, which currently features on the Wealth 50, alongside David Dudding. We think he made a significant contribution to stock selection on this fund.
Heslop's background is in European smaller companies. He was also part of Threadneedle's European equities team and was lead manager of the Threadneedle European Smaller Companies Fund from 2013. Heslop's due to launch his own European smaller companies fund at Jupiter in 2020.
How will the fund be managed?
Similar to Darwall, Nichols and Heslop will invest in a fairly small number of around 40 companies. This means each one can have a significant impact on performance, though it increases risk.
They also look for quality companies with superior growth potential. They like companies with a sustainable advantage, which makes it difficult for competitors to do better than them over the long term. A company might achieve this by having access to unique information, having a strong brand that customers remain loyal to, or owning a large share of the market, for example.
The managers are happy to invest in companies for the long term in order to benefit fully from any potential earnings growth, rather than trying to make short-term guesses and gains. This keeps buying and selling to a minimum, and trading costs low.
There are some differences between the managers though, like the sectors they currently focus on. Darwall invested in a diverse range of companies, including a number of "alternative" financial businesses. This includes Edenred, which offers prepaid corporate services such as employee benefits, Grenke, which enables smaller businesses to lease equipment rather than having to buy it outright, and Deutsche Boerse, a German stock exchange. He also invested a large part of the fund in the healthcare sector.
We expect Nichols and Heslop to invest more in consumer companies. Some are traditionally seen to have more "defensive" characteristics, which have tended to hold up a bit better when the broader market stumbles. This is because they often sell products that consumers want to buy again and again, regardless of what's going on in the world around them.
Darwall also tended to own some particularly large positions, especially in the fund's top 20 holdings. Wirecard, for instance, currently makes up almost 9% of the fund. We expect the new managers to also have some high-conviction positions, but at slightly lower weightings. It's likely the position sizes will be more evenly spread throughout the portfolio.
Overall, Nichols anticipates they'll change 20-30% of the fund fairly quickly, with no more than 50% changing by the end of the year, at which point he thinks it'll largely be in the position he wants it. The managers will also have the opportunity to invest in some slightly smaller companies, which offers greater growth potential but adds risk.
We'll speak to the managers again once the fund is in the shape they want it, and keep investors up to date with further changes.