Jupiter Global Value Equity - will the elastic snap?

Jonathon Curtis | Fri 25 October 2019

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• Ben Whitmore and Dermot Murphy are big believers in the merits of ‘value’ investing
• Recent performance has been disappointing, but the managers are sticking to their guns
• They believe there could be a big reversal of fortunes for ‘value’ and ‘growth’ companies

Our view

In recent years the market has favoured funds investing in companies expected to grow. That’s made it difficult for fund managers who invest in unloved ‘value’ companies. On the whole they’ve fallen behind their growth-focused peers. It’s important to remember though that investment styles go in and out of fashion. No investment approach will work all the time.

We prefer to look at a manager’s track record over the long-term. In the case of Ben Whitmore, manager of Jupiter Global Value Equity, his is excellent.

He’s honed his approach to value-investing over the years and, despite recent headwinds for his investment style, remains a firm believer in its merits. He has delivered strong results for long-term investors in his funds, although this is not a guide to the future. We’re encouraged he hasn’t changed his process in the face of short-term challenges, as we believe different investment styles are part of what makes a truly diverse portfolio. And among ‘value’-focused fund managers, we think Whitmore’s one of the best. That’s why you’ll find Jupiter Global Value on the Wealth 50 list of our favourite funds.

Investment approach

Along with co-manager Dermot Murphy, Whitmore seeks companies that have fallen out of favour and whose shares can be bought at an attractive price. They invest in those they think will turn themselves around, which could see their shares gain in price. Sometimes it can take a long time for that to happen though, so patience is needed, and they won’t get everything right.

To reduce the risk of falling for a ‘value trap’, where shares are lowly-valued but never recover, Whitmore and Murphy don’t invest in companies just because they look ‘cheap’. They avoid companies they view as financially weak or generally poor quality. They also make sure they don’t invest too much in any particular sector, even if they finds lots of attractively-priced companies in that area. That’s so they’re not putting too many eggs in one basket.

Once they’ve made an investment, they’ll then patiently wait in the hope the company returns to favour and the share price rises. If this happens, or if their view on a company changes, they’ll then sell it and invest the proceeds into a new opportunity.

Whitmore and Murphy invest in a relatively small number of companies so each one can make a meaningful difference to performance, but it’s a higher-risk approach. The managers normally invest in medium-to-large companies from developed countries like the UK, Japan and the US. They can also invest in emerging markets and smaller companies, both are which are higher risk.

How’s the fund performed?

The managers have grown the fund 3.6% since it launched in March 2018*. In the same time the FTSE World index has grown 23.2%. That highlights just how much the managers’ value style has been out of favour recently. This is a short period of time over which to judge performance though.

Whitmore’s longer-term record managing funds with a similar value-focused style is strong, which is why we still have high conviction in him. There are no guarantees how this fund will perform in the future though.

Throughout history, where the ‘value’ investment style has fallen behind the ‘growth’ approach, there has often been a stark reversal in how the styles performed in the following years. Following the Great Depression in 1930’s USA, the ‘technology bubble’ at the turn of the millennium, and the more recent global financial crisis, value has gone on to trump growth. That doesn’t tell us what will happen in the future, but it’s a reminder that most investment trends eventually come to an end. Of course this is not certain and the value investment style could fall even further behind.

Jupiter Global Value Equity performance since launch

Past performance is not a guide to the future. Source: Lipper IM* to 30/09/2019

Managers’ outlook:

The managers have been surprised by how large the gap between unloved companies and those expected to grow has become. Their analysis suggests it’s even larger than it was during the excesses of the dot-com ‘bubble’ in 2000. They think the US Federal Reserve cutting interest rates was a big reason for this. Low interest rates tend to favour growth companies, as cheap money is available to fund their growth efforts.

They also think widespread worries about the global economy and technological disruption have funnelled many investors into a relatively small group of companies with long-term growth expectations. They don’t believe this environment will carry on forever though. Like an elastic band that’s been stretched too far, they believe the market could eventually snap back, which could work in their favour, although there are no guarantees.

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2019

n/a: Full year past performance prior to September 2018 is unavailable as the fund launched in March 2018.

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