January sales: picking up the bargain shares
It’s that time of year again, when oversized handbags relinquish their function as a fashion...
John Chatfeild-Roberts heads up the five-strong Merlin multi-manager funds team at Jupiter Asset Management, running Elite Rated Jupiter Merlin Balanced, Jupiter Merlin Growth and Jupiter Merlin Income, among other portfolios.
The team’s process is simple: they assess the macroeconomic environment, identify the best fund managers, construct the portfolio, then monitor and modify. They effectively strive to buy the right quantities of the right fund manager, at the right time.
When John visited our offices this week to film a video interview, we also took the opportunity to to find out his current views on the world. Here’s what he had to say.
The over-arching background is one of a large amount of debt [governments, companies and individuals alike], which means we have had low interest rates for a long time now. And we think they will stay low for a long time to come.
This view informs our investment decisions and, as there has been little change on that front, there has been little change to our asset allocation in the past year or so. The last major change we made was reducing our exposure to emerging markets in first part of 2018.
We’ve been overweight the US in the funds for about five years. The stock market has become expensive, but it has also continued to be an engine for investment returns.
We’ve been less keen on emerging markets and we haven’t held a global emerging market equity fund for some time. All the while the US dollar is strong, emerging markets just don’t do as well, so we have not invested.
As and when the dollar weakens, we’ll look again. But currencies are very hard to call, so we won’t try to predict when this will be – as Edward Bonham Carter, our Vice Chairman, once said: “You can tell what a currency will do in the next 15 minutes, that is all!”.
Instead we’ve focused more on Asia where we feel more positive. We currently hold Stewart Investors Asia Pacific Leaders and added Invesco Asian about a year or so ago. The latter fund is run by a manager we think could be very talented. At the moment the position is relatively small, but we hope to build this over time.
We hold very little in Europe – the outlook simply doesn’t look very good. People like Alexander Darwell (manager of Jupiter European Opportunities) have done well as they are invested in companies that are listed in Europe but which do most of their business elsewhere.
At some point in time, when there is a weaker dollar, emerging markets and Europe may well come back and it will be time to change the entire portfolio. Not right now though.
They say that your formative years colour your view on everything. I’m an inflation baby – I was brought up in the 1970s. As a result I think I have a natural bias towards equities. But I recognise that there are some investors who don’t want to take on the risk that comes with the asset class, so bonds have their place. The team as a whole is still not positive on bonds though, so while we hold a few corporate bond funds in some of the portfolios, when we are bearish, we prefer holding cash instead.
The interesting thing about finding the best people is that we are not starting with a blank piece of paper. The team has been managing money for a long time, so we are usually looking at people that we have come across before and catching up with what they are doing today, compared with say five or 10 years ago. We look for youngsters too. We don’t come across them very often, but occasionally we do.
One example is when we invested with Hugh Yarrow about four years ago. He runs Evenlode Income fund. He was in his 30s at the time and we thought he and his co-manager could do very well. Importantly for us they are in a stable environment, owning their own company, and have a repeatable process, so they should be around for a good 15-20 years running their portfolio.
Another example is Chris St John on AXA Framlington UK Select Opportunities. He was deputy manager on the fund before taking the lead when Nigel Thomas retired earlier this year. It was a good example of succession planning: AXA had brought Chris to meet us a number of times before the change was announced, so knew him well. We are of the view that he is probably going to be a very good manager, so have held on to a small amount of the fund in the Jupiter Merlin Balanced portfolio.
We were also relatively early investors in Fundsmith Equity, managed by Terry Smith. As with any investment that works well as this has done, we’ve gradually built conviction over time. Of the 28 stocks he held in the fund then , he still holds around 17 today. He’s been very clever in using new inflows of money to re-weight the fund allocation over time.