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Fund Research & Insights

Jupiter UK Growth

There's a lot to like here, save costs.

Emiko Kurotsu 9 May, 2007 | 3:36PM
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Recent changes at the top don’t affect our positive view of Jupiter UK Growth, but we still wish it were cheaper.

In mid-March, Jupiter’s senior management, backed by private equity group TA Associates, led a buy-out of the firm from former owners Commerzbank. While such changes come with inherent risks, we aren’t too troubled by this buyout and believe that it may provide better stewardship for Jupiter fund investors (read more about our concerns here). That aside, we think this go-anywhere offering has a good deal of merit. Portfolio manager Ian McVeigh brings 23 years of industry experience to

the table, with eight of those in fund management. Though he has only been running this fund since April 2003, he has proven his mettle through various market cycles. He ran the Schroder Income fund during a difficult bear market between March 2000 and March 2002: When the FTSE All-Share was down 5% annualised and the fund’s UK Large-Cap Value category eked out a return of just 6%, McVeigh led the fund to a top-decile return of 16% annualised.

Go-anywhere mandates can quickly run amok, but McVeigh handles this mandate ably. He has moved the portfolio away from his predecessor’s value bias and towards a 50/50 blend between value and growth. He evaluates companies based on whether he thinks they are value, growth, or recovery plays (with separate valuation criteria for each), and sets his expectations for each firm in the portfolio according to these style baskets. This helps provide style diversification even within concentrated sectors, cushioning the fund against underperformance in any one style. For instance, he held a hefty 40% stake in financial services firms as of January 2007, but that included firms ranging from growth darling HBOS to value play Barclays and recovery stock Royal & SunAlliance. The fund is also diversified by market-cap: over the past three years, he has kept an average of 21%, 30%, and 36% in giant-, large- and mid-caps, respectively, with the rest spread in small- and micro-caps.

McVeigh has also shown a flair for positioning the fund to benefit from key trends. In the past two years, he overweighted mid-caps by about 14% and 17% versus its Morningstar UK Large-Cap Blend category. This provided a nice boost in an environment where mid-caps were significantly outpacing larger-cap firms. He was similarly astute in the mining sector, where top holding Xstrata has been a key driver of the fund’s strong performance. (He’s far from a commodity chaser though, having mostly opted out of the energy rally.)

The fund’s volatility, as measured by three-year standard deviation, is two or three percentage points above the category norm, but we think McVeigh duly compensates for the added risk by his strong returns (the fund ranks in the top one percent of its category on a trailing three-year basis). The question is how much investors want to pay for this: The fund carries a total expense ratio (TER) of 1.83% a year, which is significantly higher than the category median TER of 1.56%, giving McVeigh a significant hurdle to overcome.

That TER is tough to swallow, but we think McVeigh’s experience and proven style make this an otherwise very attractive choice for UK equity exposure.

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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Emiko Kurotsu  Emiko Kurotsu is an exchange-traded fund analyst with Morningstar.

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