For six years, Anthony Nutt could do no wrong as manager of several Jupiter funds including the Jupiter Income Trust. He took over the mandate from another star, William Littlewood, and kept it firmly in the top flight. But when the financial crisis hit, things started to go awry - and Mr Nutt's reputation started to suffer.
What went wrong? Perhaps surprisingly, it wasn't banks that undid the fund's performance. "The problem was my weighting in line with the market to the worst of the media sector, Yell and Johnston Press." Directories business Yell had performed very strongly after its initial public offering, as did SABMiller and Admiral, and Mr Nutt reckons some of his best investments were companies that he bought at flotation. "But my error was not to take on board Yell's leveraged private equity model which was looked on so badly by the stock market. Its cash flows had been good prior to the financial crisis, but then they were not sufficient."
He had also got out of mining shares after a strong run. "We had an overweight in mining with names such as Antofagasta and the return on investment (RoI) was very successful. We exited in 2007 and made a good profit." For a year or so, that looked a good call as the sector slumped. But Mr Nutt missed his chance to get back in. "So of course in 2009 when this sector rallied in the 'dash for trash' we underperformed.
He also bought Juridica Investments, an investment trust which invests in litigation claims. "The return on investment for this fund was very profitable, but for its shareholders it's not so great because it has a performance fee," explains Mr Nutt.
Juridica has an annual fee of 2.5 per cent of assets and a performance fee which ranges from 20 per cent to a whopping 50 per cent of increase in net assets over certain hurdles, which racks up to a current total expense ratio of 3.36 per cent - far higher than most unit trusts and investment trusts.
Clawing back
Mr Nutt is intent on clawing back lost ground. "I want to put this portfolio in a position such that I don't get asked questions again like I'm being asked this afternoon," he says.
But he is not changing his investment approach. "I am not going to try to be contrarian, but continue as a value player. I identify long-term trends and undervalued areas of the market. I am mostly not underweight in anything: my policy is be overweight or don't own it. It is meant to be a purposeful portfolio."
His emphasis is on dividend growth rather than buying yield, and good examples of this are top ten holdings SABMiller, and Diageo which also does share buybacks. "I would rather pursue dividend growth than stocks that are too defensive," he adds. "If I can grow the dividend from here I will get growth." This focus on dividend growth means he will consider shares in any sector.
That has led him into financials - a bold call right now, and the fund's largest sector exposure at more than 20 per cent. Mr Nutt says this is a result of stock selection, rather than a sector preference. He also does not confine himself to insurance, an area favoured by some equity income funds, though has over weights in non-life insurance companies Hiscox and Beazley, "which have given the returns I want."
Another substantial overweight is pharmaceuticals, an area he had not looked at for fifteen years. "These will make my numbers look good in due course," he asserts. "Before 2007 I did not hold them because their research and development expense was rising but the return on it was declining."
He has retained some of the stocks which caused him problems, though Yell and Johnston accounted for less that 0.2 per cent of assets at the end of June. "BP is doing better, while Yell and Johnston are under priced assets which will recover to some extent," he explains. "But this won't be to the same level as prior to 2007, particularly in the case of Johnston because the future is not bright for local papers. Nevertheless, Yell's transition to online was among the most successful. The problem was the business model."
He hasn't returned to mining shares, though. "Miners have come unstuck more recently, and our nil weighting in mining had no greater detrimental effect than the holdings in media stocks," he says. "We exited Lonmin at over £40. It then fell to £5 and has now been refinanced by shareholders."
Mr Nutt has also been helped by the appointment of a co-manager, Philip Matthews, in March this year, although Jupiter says that Mr Matthews had been working on the fund for years, and this is just a formalisation of his role.
It all seems to be working. This year, at least so far, the fund has bounced back into the second quartile, underpinning Mr Nutt's assertion that "we are putting this fund back on track."
But not fast enough for the likes of ratings agency S&P, which has downgraded Jupiter Income and High Income from triple to double A, or financial adviser Bestinvest, which has reduced these funds to its lowest rating, one star.
However, they're looking largely at past performance - and as any adviser will tell you, that's not always a guide to the future.
