Outlook 2020: Active Managers Can Still Outperform

VIDEO: Index tracking funds have grown in popularity with investors, but Jupiter's John Chatfeild-Roberts thinks active fund managers can still shine

Holly Black 15 January, 2020 | 10:31AM



Holly Black: Welcome to the Morningstar series, "Why Should I Invest With You?" I'm Holly Black. With me is John Chatfeild-Roberts. He is Manager of the Jupiter Merlin Growth Portfolio. Hello.

John Chatfeild-Roberts: Hello, Holly. How are you?

Black: Welcome to the studio.

John Chatfeild-Roberts: Thank you.

Black: So, would you like to tell us a bit about what the fund does?

John Chatfeild-Roberts: Well, the Jupiter Merlin Growth Portfolio hopefully is a one-stop shop for people who are not really bothered about the minutiae of what their investments are doing but they want the result. It's a fund of funds with a capital growth objective. And it buys funds from across the marketplace.

Black: So, instead of holding bonds or stocks directly, you're picking fund managers?

John Chatfeild-Roberts: Absolutely. And our view is that it's people that are the important thing in life, whether it's your school teacher, you had really good ones, really bad ones, policemen, whatever, and fund managers are the same. It's pretty much all about the individuals.

Black: So, the focus of this portfolio is growth. What are the some of the drivers for the year ahead there?

John Chatfeild-Roberts: Well, the year ahead is always more difficult to forecast. I can tell you what the drivers were last year, which, particularly American stocks did well, things with the technology and the growth bias did well pretty much up until September. Then there's been a slight rotation back into sort of cheaper things. We call it value in the jargon but shares which were essentially cheaper. Looking forwards, well, right now with a few problems on the Iranian front, but interest rates are low. The economics of America pretty good. I mean, there's always things to worry about, but I would think things are okay at the moment.

Black: And how is it different being a manager who invests in other managers rather than into equities?

John Chatfeild-Roberts: You have reduced the risk that you're running significantly. And if you go back to sort of first principles, if you buy shares in one company and put all your money in it and the company goes bust, you lose all your money. If you then spread that money across a dozen shares, one of those companies might go bust. And it's pretty unlikely that – I mean, your portfolio will do worse, but it obviously won't get taken to the cleaners. If you buy funds, the chances of one fund going under are pretty low. I mean, it does beg the question of Woodford. So, if you own the Woodford fund, and you bought it at the peak, say about £125, currently, the price is about £85, although can't get your money out. But that does mean that your money has perhaps gone down, say, a third or something like that, but it hasn't gone to zero.

Black: So, if you're investing in other portfolios that hold, say, 80 or 100 stocks, does that mean that you don't have to have so many holdings or does it not quite work like that?

John Chatfeild-Roberts: Yeah, that's correct. I mean, many portfolio managers with individual stocks would say have 30, 40, 50 holdings. If you look at the Jupiter Merlin Growth Portfolio, it's got, say, between 12 and 15 holdings depending on when you're looking at it, but currently about 15. And that is a concentrated number. You could actually have less.

Black: And something we hear a lot about is the debate between active and passive investing. And when stock markets are quite volatile or unpredictable, it is harder for active managers to outperform. So, are you finding that it's hard to find good active managers or do you still believe in it?

John Chatfeild-Roberts: Firstly, I absolutely believe in active management. Secondly, the fashion most definitely is for buying passive index trackers. One thing you can guarantee about an index tracker is it will marginally underperform the index it's trying to track. There is an active choice. You've got to choose which index you're wanting to track and there are – I don't know – 40,000 indices out there. There's a huge amount of choice. And as more money goes into passive management, so the – if you like, the opportunity set for active managers increases because effectively with passive management, you've got not quite stupid money, but you've got money that's just going into the indices making no choice at all. And obviously, over time, some companies do well, and some companies do badly. And if most of the money is blindly just going in there, that means what's left for active managers, you know, there are more opportunities for them.

Black: Well, thank you so much for your time.

John Chatfeild-Roberts: Thank you, Holly.

Black: And thanks for joining us.

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.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

Audience Confirmation

By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites