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Jupiter: We're Investing the Fund for a Stay Brexit Vote

Jupiter's UK Growth investor Steve Davies has positioned his equity fund to benefit from staying in the EU - but if the polls change he'll up the cash holding and exposure to overseas

Emma Wall 4 April, 2016 | 1:02PM
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Emma Wall: Hello, and welcome to the Morningstar series 'Why Should I Invest With You.' I'm Emma Wall, and I'm joined today by Steve Davies, manager of the Jupiter UK Growth Fund.

Hi, Steve.

Steve Davies: Good morning.

Wall: So last couple of weeks there has been a lot of news that has impacted U.K. markets. If we take it back to the Budget, Chancellor stood up and he said economic growth has been downgraded. But you're quite positive on the domestic growth story, aren't you?

Davies: Yes. I think the U.K. domestic picture is actually okay. The sort of downgrades have been hitting the manufacturing sector and the export sector, so more relevant of overall global growth slowing down. But I've seen a lot of companies whether that’s housebuilders, car companies, travel companies or e-tailers in the last few weeks, most of them are all still talking pretty positively.

Wall: I suppose the other great unknown at the moment is Brexit. How does that impact the companies you just have been talking about?

Davies: Yes, so that is the elephant in the room, if you like, and I would say most of them are not seeing any impact at the moment, but this is going to be a pretty binary outcome. Most of them think that if we vote to remain, then things can kind of chug along; if we vote to leave, then nobody really knows what's coming and uncertainty doesn’t help from an economic point of view.

So, in terms of how we set the fund up, at the moment it's very much positioned for staying in the EU. There is a lot of work that I can do on the polling front. I'm a politics student at heart and I'm a data geek. So we are getting really stuck in at the moment into why the phone polls are showing quite a clear majority in favour of remaining, whereas the online polls are much closer. So we can do a lot of work like that. But we've still got close to three months of this to come. If it starts getting much tighter, then I have got three or four lines of defense that we can put in and it's kind of the same stuff we did in the run-up to the [General] Election last year.

So, firstly, we've got some overseas names in the fund and we don't hedge the currency on those. So there is a bit of protection against sterling falling. We can take the cash level in the fund up; so it's around 5% at the moment. We took it up to 10% in the run-up to the Election. Then we can put that cash in dollars as well. That's another thing. And then we can tilt the slant to the growth; we can favour more sort of overseas global growth stories companies like Inmarsat (ISAT), Carnival (CCL), we could have bigger weightings in those, and that would be at the expense of some of the U.K. domestic companies and the banks.

Wall: Because, of course, being an active manager is not just about what you hold, it's also what you choose not to include in the fund. So even though the market may be hit by whatever the Brexit outcome is, it doesn’t necessarily mean that your UK Growth Fund will be?

Davies: No, I mean, I'm a high conviction investor. I'm not going to buy companies I don’t like for the sake of protection, but equally we have got a duty to try and defend against these kinds of tricky outcomes. So that's why I prefer using the cash and using the currencies to give us that protection.

Wall: And I suppose there is also the argument that you have got to look longer term than just what happens in June, and I suppose good quality companies will out?

Davies: Yes, it's a tricky one. I mean, the one thing I can guarantee is that the market will overreact in either direction. So there will probably be some opportunities either way as well and that’s why having some fire power, some cash sitting there come June 24 is probably a pretty sensible place to be.

Wall: Steve, thank you very much.

Davies: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Carnival PLC1,286.80 GBP0.00Rating
Jupiter UK Growth L Inc265.01 GBP1.96Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar