Jupiter Global Value Equity: August 2020 update

Jonathon Curtis | Thu 27 August 2020

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• Ben Whitmore and Dermot Murphy have the courage and patience needed to invest in unloved companies with recovery potential
• Whitmore’s shown his skill at ‘value investing’ over the long term
• The fund’s suffered as investing-for-growth has been favoured in recent years, but we think the fund could do well if there’s a reversal of this trend
• This fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

This fund aims to achieve long-term growth by investing in out-of-favour companies with recovery potential from around the world. That makes it different from many other global funds that focus on companies with high-growth expectations, and we think the two styles could work well together in a portfolio. Also unlike many other global funds, it invests relatively little in the US and so could be used to gain international exposure to other stock markets.

Managers

Ben Whitmore and Dermot Murphy are the co-managers on the fund, which they launched in March 2018. Whitmore is an experienced investor, and has been managing funds for nearly two decades. He joined Jupiter in 2006, having previously worked at Schroders. As well co-managing this fund, he’s also managed the Jupiter UK Special Situations Fund since 2006 and the Jupiter Income Trust since 2013. Whitmore is also Jupiter’s Head of Strategy for value equities. As all his funds are run using a similar approach, we think he’s able to devote enough time to each.

Murphy joined Jupiter in 2014, having previously worked at Fidelity as a building materials analyst. As well as co-managing this fund, he also assists Whitmore on the Jupiter Income Trust and Jupiter UK Special Situations Fund. Although we don’t doubt Murphy’s skills, our main conviction lies in Whitmore.

We admire the managers’ disciplined approach and commitment to their style, even when it’s faced big headwinds. It can take courage and perseverance to invest the way they do, and we think they have both in spades. Combined with Whitmore’s strong-long term track record, that’s why the fund is on the Wealth Shortlist.

Process

Whitmore and Murphy look for companies whose share prices, in their opinion, don’t reflect their true worth and so can bought at an attractive price. These companies are often unloved because of a setback, or their industry has become unpopular. Crucially though, Whitmore and Murphy will only invest in those they think can turn themselves around, which could see their share price rise. This approach can take time though so it requires patience, and some companies may not recover.

To place their value on a company, the managers look at the strength of the business, its financial health and its long-term average share price and compare that to the current share price. By focusing on the quality of companies, Whitmore and Murphy think that should help them avoid ‘value traps’ – shares that are ‘cheap’ because a company is permanently impaired.

Most of the companies Whitmore and Murphy invest in are large and medium-sized businesses from developed countries, but they can invest in higher-risk emerging markets and smaller companies too. They also invest in relatively few stocks, which means each one can have a meaningful impact on returns, although this is a higher-risk approach than a more diversified one.

Because of the managers’ style, they often invest in areas that many other investors have shunned. That currently includes sectors such as automobiles, media, banks, mining and tobacco. They’re also finding lots of attractively-valued opportunities in the UK and Japan - both out-of-favour markets. Nearly half the portfolio is invested in companies from these two countries.

The US on the other hand makes up around 13%, compared with the broader global stock market’s 57% US weight, as Whitmore and Murphy think valuations are high there. They’re still finding some US opportunities though, such as Booking Holdings – the world’s largest online travel booking company – which they recently invested in. Although earnings will be heavily impacted by worldwide lockdowns, Whitmore and Murphy like its strong finances and market-leading position and think the company can recover and prosper over the long term, although of course there are no guarantees.

Culture

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. The business setup allows Whitmore and Murphy to focus purely on fund management and take a long-term view, which is important as their value style of investing often requires patience.

Jupiter is also placing increasing importance on environmental, social and governance (ESG) issues, and has a governance & sustainability team that helps fund managers engage with companies and vote on ESG matters.

Cost

The fund usually has an annual ongoing charge of 0.93%, but we’ve negotiated a 0.40% saving so it’s available to HL clients for 0.53%. The HL platform fee of up to 0.45% per year also applies.

Performance

Since the fund launched in March 2018 its performance has been poor. It has fallen 9.9%* compared with the FTSE All World index’s 23.2% gain. This is a relatively short period of time over which to judge performance though, and remember past performance isn’t a guide to future returns.

The managers’ value style has been out of favour for several years, as the market has generally rewarded growing companies. The difference in fortunes between the two investment styles has been particularly stark since the beginning of the year. Over long periods of time throughout history, however, the reverse been true, with value trumping growth. We’re not predicting a reversal of the current style trend soon, but we don’t expect it to carry on forever.

Investing more in the UK, which has been one of the weakest markets recently, and less in the US, which has been one of the strongest, has also hurt the fund’s returns. The managers’ investments in the financial and non-essential consumer sectors in particular have hindered performance.

Over the long-term though Whitmore has performed well. His career track record is very good despite recent disappointments. Our analysis put that down to generally him holding up better than the market when it’s been falling. We think Whitmore and Murphy have the ability to do better in the future, although there are no guarantees.

Any gaps mean full year performance data is unavailable.

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