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Jake joined in 2013 as Head of Lipper UK & Ireland Research. Since 1998, he has specialised in mutual fund research & selection, fund-of-funds portfolio management and asset allocation strategies. He spent six years as a portfolio manager and fund selector at AIG and has been a mutual fund research specialist for Lloyds Banking Group, Towry and the Commonwealth Bank of Australia. He is a trustee director of the Thomson Reuters UK Pension Plan. Jake is a Chartered Member of the Chartered Institute of Securities & Investment (CISI) and a Senior Fellow of the Financial Services Institute of Australasia (Finsia).
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Fund Manager Briefing: Jupiter Absolute Return Fund
Fund Manager Briefing: Jupiter Absolute Return Fund
Lippers Jake Moeller presents highlights of a presentation by James Clunie, Fund Manager,Jupiter Absolute Return Fund, on June 19, 2014.
It is unlikely you could find two more different fund houses than Swip and Jupiter. Swip managed a significant internal book of life company balance sheet assets and was undergoing significant transition away from active equities before its takeover by Aberdeen. Jupiter, on the other hand, with its strong retail focus, has been highly committed to active fund management, with a suite of high-profile and independently minded managers.
Cultural fit is a crucial consideration in the analysis of a fund manager. Mr. Cluniewith a quiet, considered, and highly academic backgroundseems quite at home in Jupiters broad church. Whereas Swip had considerable team-based structurewith a high degree of cross-reliance, there is little of that at Jupiter. Mr. Clunie admits that the cultural change was considerable but points out that there are no silos in his new house, despite 35 highly autonomous fund managers going about their business. As a global equity long/short manager, I have more excuse to talk to anybody in the office. He enjoys Jupiters intellectual fermentexchanging ideas, for example, on how examining the analysis of earnings manipulations can supplement the view of a stock or how his shorting of stocks other Jupiter managers hold long can create a two-way challenge to an existing thesis.
Jupiter Absolute Return Fundhas a 3m Sterling Libor benchmark, and the stated fund objective is to generate absolute return over a three-year rolling period. The IMA Targeted Absolute Return sector, in which the fund sits, is highly heterogeneous, with funds composed of corporate bonds, equity long/short, equity longs with index shorts, diversified multi-asset funds such asStandard Life Gars, and multi-asset long-only funds such asNewton Real Return. This makes comparisons difficult. Mr. Clunie recommends investors seeking absolute-return solutions look closely at where the manager has an edge, not just choose a fund on its short-term track record, its name or its sector classification.
Table 1. Performance of Jupiter Absolute Return Fund from Mr Clunies Tenure
Mr. Clunies edge is short-selling of stocks, predominantly in the U.K. market. His strategy is to wait for a catalyst, such as an earnings downgrade in conjunction with a high PE, rather than simply to short an overpriced stock. He spends considerable time examining data about other short sellers, stock lending, borrowing fees, the composition of the share register (is there concentrated institutional ownership, family ownership, or hedge fund involvement?), and whether a short position may be crowded (he uses adays-to-coverratio to examine this ). His long positions are typically bigger than his short positions. His biggest long has been plus 5% and short minus 3%, but plus 3% to minus 1.5% is more typical. (This is to prevent shorts creating illiquidity if they go wrong [i.e., rise], forcing Mr. Clunie to cover the stock.) Currently, he has 30 shorts, many around minus 0.3%, but these positions are ready to be increased when the market picks up momentum.
Aside from the additional work on the short side, his analytical toolkit is the same for longs and shorts. There is an initial screening process with 20 quant screens (each 5% equally weighted) examining value, quality, momentum, balance sheet, and earnings. These include theM-Scoreto look at manipulation of earnings and thePiotroski Scoreto summarise the accounting metrics. Stocks that screen well (or poorly for shorts) are then subjected to further traditional fundamental analysis before being included in the portfolio.
Another key point for Mr. Clunie in addressing the broad nature of the Targeted Absolute Return Sector is to manage clients return expectations. He believes 6% pa is a reasonable expectation of what he can achieve for investors:
He has achieved more (10% while at Swip) but is very conscious of potential drawdown. His worst month was minus 6.9% for April 2010, when the markets fell just over 20%. He is, therefore, constantly examining potential drawdown scenarios. His biggest concern at the moment is a global deflationary shock. If say, China devalues the RMB 15% to become more competitive, he has calculated a potential loss of 7.5% to the fund if his beta, factor bets, and shorts move against him. He therefore closely monitors the canaries in the coalmine of Chinas currency and the Eurozone CPI. He uses T-Bonds and gold to create a natural deflationary hedge in the portfolio and is currently 6% bonds and 1% gold.
Mr. Clunie took over theJupiter Absolute Return Fundfrom Philip Gibbs on September 1, 2013. At that point the portfolio consisted of a 3% holding in a Barclays bank bond and 97% cash. Currently, the portfolio is 70% gross and 29% net equity. Mr. Clunie is prepared to take the gross higher when he sees a sharp dislocation in the market. He is 45% long equities (52 stocks)particularly liking petroleum, which he sees benefiting over increasing capital discipline, and he is minus 15% short equity in quality stocks such as Diageo that are characterised by high PEs with earnings downgrades and revenue shocks. Despite that his old Swip and new Jupiter fund have the same mandate (global multi-asset long/short), his Swip fund was 85% U.K., 15% international. At Jupiter it is 60% U.K. and 40% international, reflecting a desire to expand his stock universe.
Table 2. Risk/ Return Characteristics of Jupiter Absolute Return Fund within IMA Classification (since Mr Clunies Tenure).
Source: Lipper for Investment Management/ Eric Ho.
Mr. Clunies brief at Jupiter is simpleto keep on doing what hes been doing, taking the appropriate degree of risk with confidence and gather assets. At Jupiter he appears to have found an environment where his talents and academic disposition are being cultivated and supported. The addition of a highly qualified analyst in late July 2014 and the elimination of the distractions of project committees and complex fund interdependences mean his dedication and accountability to this single product is indeed absolute.
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This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. The author does not own shares in this investment.
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