The UK economy and market look set for a good year as conditions continue to improve, but if investors want to benefit they need to ensure they get exposure to the right shares and funds. And a fund that looks like it might be very right is Jupiter UK Growth (GB0004792130).
- Excellent long-term returns
- Economically sensitive positioning
- Strong in rising markets
- Experienced managers
- Short-term underperformance
- Volatile
IC TIP RATING
Tip style: GROWTH
Risk rating: HIGH
Timescale: LONG TERM
This fund has been a good bet regardless of UK economic conditions, as it has beaten the FTSE All-Share over one three, five and 10 years by a considerable margin. It is also among the top 25 per cent of funds in the Investment Management Association (IMA) UK All Companies sector in terms of performance, over one, three and five years.
Kate Marshall, fund analyst at broker Hargreaves Lansdown, points out that Jupiter UK Growth has an economically sensitive bias and that performance has previously been superb in rising markets. "This fund is a good choice for investors who share the managers' positive outlook on the UK economy," she says.
The fund is heavily biased towards consumer sectors with holdings in companies such as retailers because its managers have an optimistic long-term outlook. The fund's largest sector allocation is financials, nearly a third of the portfolio, with substantial amounts of money in banks such as Lloyds (LLOY) and HSBC (HSBA). "We think good value continues to be found in financials which are still controversial and many investors tend to avoid," says its managers Ian McVeigh and Steve Davies.
The fund can also invest up to 20 per cent of its assets in overseas companies, and its top 10 holdings currently feature German car company BMW, which Mr McVeigh believes is a provider of aspirational purchases with a strong brand.
Read our interview with Mr McVeigh
When picking shares, the fund's managers classify them into two categories:
• Growth (at a reasonable price), and
• Value/recovery situations.
Growth stocks need to offer sustainable organic sales growth, while value stocks trade on a low valuation over normal earnings. Recovery stocks trade on a more standard market valuation, but on earnings that are well below potential.
The fund's managers set a two-year target price for each share to give a clear view of the return expected.
They tend to hold shares for the long term which cuts trading costs. Position sizes generally range between 1 and 5 per cent, reflecting a mixture of conviction and liquidity, though currently the three top holdings are larger than this. Because the fund has a relatively small number of holdings - currently 40 - its managers will often take substantial overweight positions while being prepared to have nothing in some of the largest stocks in the index if they feel there is no strong investment case.
The concentrated number of shares means the fund has had periods of higher volatility than the index and, while annual returns have been mostly strong, in some years it has posted steep losses.
However, as its cumulative returns show, the fund has more than made up for any short-term underperformance. Its managers also monitor the aggregate risk of the portfolio in terms of thematic exposure and, in particular, what implied equity market view is represented by the fund: bullish, bearish or reflecting a sideways moving market.
The fund's ongoing charge of 1.79 per cent is slightly above the standard 1.6 per cent for a UK equities fund, but has been well compensated for by its outstanding performance.
So, with strong returns that prove its managers get it right over time and a strong record in conditions such as the present, Jupiter UK Growth looks like an excellent portfolio addition. Buy.
JUPITER UK GROWTH (GB0004792130) | |||
PRICE | 306.1p | MEAN RETURN | 16.74% |
IMA SECTOR | UK All Companies | SHARPE RATIO | 1.01 |
FUND TYPE | Unit trust | STANDARD DEVIATION | 14.80% |
FUND SIZE | £1bn | TOTAL EXPENSE RATIO | 1.79% |
No OF HOLDINGS | 40* | YIELD | 0.87% |
SET-UP DATE | 01-Apr-88 | MINIMUM INVESTMENT | £500 |
MANAGER START DATE | 01/04/2003/31/08/09 | MORE DETAILS | www.jupiteronline.com |
Source: Morningstar, *Jupiter.
1 year cumulative total return (%) | 3 year cumulative total return (%) | 5 year cumulative total return (%) | |
Jupiter UK Growth fund | 29.43 | 56.94 | 173.53 |
FTSE All Share TR GBP | 17.34 | 33.48 | 113.30 |
UK All Companies sector average | 23.24 | 39.14 | 128.60 |
Source: Morningstar as at 20 January 2014
Top 10 holdings as at 30 November 2013
Holding | % |
Lloyds Banking Group | 7.6 |
Legal & General | 5.7 |
Barclays | 5.6 |
BMW | 5 |
British American Tobacco | 4.3 |
HSBC | 4.1 |
GKN | 4 |
Dixons Retail | 3.8 |
Howden Joinery | 3.6 |
ITV | 3.3 |
Sector breakdown
Sector | % |
Financials | 30.80 |
Consumer Services | 28.40 |
Consumer Goods | 17.30 |
Industrials | 5.7 |
Telecommunications | 4.6 |
Basic materials | 3.4 |
Technology | 3.1 |
Cash | 6.7 |