Jupiter European Smaller Companies

This interesting new fund was launched in February 2020. The managers look to buy and hold high quality companies experiencing secular growth for the long term. The focus is on company fundamentals and macro-economic factors are largely ignored. Co-manager Mark Heslop previously had great success with the European smaller companies strategies he ran at Columbia Threadneedle. He left Columbia Threadneedle in 2019 to manage the Jupiter European fund and has now added this fund to the range.

Our opinion

Jupiter European Smaller Companies is an exciting new fund which got off to a promising start, despite launching at a very difficult time. The fund’s process is solid, and the team is small and nimble. Mark Heslop is an experienced specialist in European smaller companies and has consistently delivered for investors in the past. This is definitely a fund to watch for the future.

Fund manager

Mark Heslop has a degree in Chemistry from Durham University and is a chartered accountant. He began his career at Citi in 1999, where he worked as a chemicals and industrials analyst. He then spent 11 years at Columbia Threadneedle, where he managed global and European smaller company strategies. Mark left Columbia Threadneedle in 2019.

Mark was joined in February 2021 by co-manager Phil Macartney. Phil also previously worked at Columbia Threadneedle, for five years, as a fund manager on the UK equities team. He holds a Masters in Engineering from the University of Cambridge, and is a Chartered Financial Analyst. He began his investment career in 2008.

Mark HeslopFund manager

Investment process

Jupiter European Smaller Companies fund invests in high quality cash-generative businesses, which consistently generate value for shareholders. These companies must have a sustainable competitive advantage.

The managers buy companies for the long term and are happy to ignore short-term noise which is irrelevant to the long-term value of the business, even if it temporarily affects the share price. This long-term approach allows the fund to benefit from the compounding of businesses over time. Long-term secular growth trends the fund is aiming to take advantage of include: ageing populations; emerging wealth; automation and supply-chain efficiency; environment; consumer behaviour and data/digitalisation.

Mark and Phil like regional or global leaders in niche markets and they have a preference for owner-managed businesses. Analysing and understanding the industry in which a company operates is critical to any investment. It is important that the team can understand why a company’s competitive advantage is sustainable. To do this it looks at a classic five-forces model examining; the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes and rivalry amongst existing competitors.

The team conducts a detailed business analysis on around 150 companies. It will undertake company meetings, and potential investments will then be modelled and subject to ESG analysis and then further challenges from the team. The best 50 to 60 ideas will then make it into the portfolio.

ESG

ESG - Limited  

With this fund, Mark and Phil look to generate the best long-term returns for clients without taking unnecessary risk. This means the fund can have exposure to firms that have environmental, social and governance issues, so long as those risks are understood and are not felt to be detrimental to a firm’s long-term potential.

The fund has a quality approach and is therefore looking for firms with sustainable business models, and with pricing power and barriers to entry for new competitors. As such, the fund is unlikely to hold industries many investors would consider unpalatable, such as oil and gas companies, as they don’t have these characteristics (pricing power in this instance). However, this is more of an outcome of the approach rather than an explicit guide to investment.

In the smaller companies space, governance is a particular issue as management teams have an outsized influence on a firm’s destiny. As such, governance is heavily considered whilst assessing a potential holding.

Risk

The portfolio is between 50 and 60 holdings, which is quite concentrated for a smaller companies fund. Position sizes typically range from 0.5%-4%. Although this is a smaller companies fund, it will generally avoid the smallest companies with market caps lower than €500m.

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Read more about this fund

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