Jupiter High Income Fund research update

Heather Ferguson | Tue 14 April 2015

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Supermarket price wars have lowered food prices, and bills at the petrol pump have reduced following the collapse of the oil price. This, along with slight wage growth is positive for the continued recovery of the UK economy, according to Alastair Gunn and Rhys Petheram, managers of the Jupiter High Income Fund.

Over their tenure, the managers have maintained the fund's equity exposure at around 80% with the balance invested in bonds and cash. As the fund sits within the IA Mixed Investment 40-85% Shares sector, the equity exposure is near the maximum permitted level, reflecting their positive view on the UK economy. Alastair Gunn is responsible for managing the equity portion of the fund while Rhys Petheram manages the bond investments which include higher-risk high-yield bonds.

The managers have positioned the portfolio towards companies which perform better when the economy is stronger. This includes holdings in airlines such as easyJet, IAG and Ryanair; car insurers Admiral and esure; and house builders Crest Nicholson and Galliford Try. These companies are of particular interest to the managers due to their strong capital discipline and record of increasing shareholder returns. Elsewhere, the managers have reduced the fund's exposure to oil-related companies given the sharp drop in the oil price.

Alastair Gunn has largely avoided iron mining companies. This has proven positive for performance as most have struggled against a backdrop of falling iron ore prices due to reduced demand from China. He has avoided big banks such as Barclays, Lloyds and RBS, favouring insurance companies such as Brit, Prudential and Legal & General. The latter offer attractive, rising dividends and operate under a less repressive regulatory environment than the banks whereas the manager is concerned regulatory issues could push back the timing and size of bank dividends.

Rhys Petheram favours bonds issued by companies he feels are set to improve their creditworthiness as they reduce debt. This includes companies such as SGD which produces glass bottles for the pharmaceutical and perfume/cosmetic industries; and oil industry service provider Bibby. Conversely, he has been selling positions in bonds issued by Virgin Media and William Hill, where he feels the level of income produced is too low to compensate for the additional risk of holding them.

The managers have worked together on the fund since January 2014. Over this time, the fund has returned 8.4%* compared with 6.8% for the FTSE All Share Index and 10.6% for the IA Mixed Investment 40-85% Shares sector, although past performance is not a guide to future returns. It seeks to provide an attractive, growing income and currently yields 3.9% per annum, although this is variable and not guaranteed.

Performance of the Jupiter High Income Fund over the managers' tenure

Past performance is not a guide to future returns. Source: Lipper IM *to 01/04/15

Our view on this fund

Both Alastair Gunn and Rhys Petheram have relatively short track records and the managers have not been running the portfolio together for long. We would like to monitor their performance over a longer period before considering it for inclusion on the Wealth 150 list of our favourite funds across the major sectors.

Please note the fund's charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.