Capture US financials growth with Jupiter Financial Opportunities

"The outlook for S&P 500 Financials, which has risen 17 per cent since 8 November 2016, is promising, spurred on by rising interest rates and a possible repeal of regulation leading to an increase in financial activity," says Nick Peters, multi-asset portfolio manager at Fidelity International.

Any increase in infrastructure spending is likely to boost inflation, leading to higher interest rates, and higher interest rates would benefit banks as they would make more money on their funds, boosting their profits.

Jupiter Financial Opportunities has just under a third of its assets in banks, its largest sector exposure. It also invests in the shares of other types of financials, including insurance and real-estate-related companies across various geographies. After the US, its largest regional exposure is Europe ex UK, which accounts for 31 per cent of assets.

The fund is run by Guy de Blonay, who has established a sound record of consistent alpha generation in rising and falling markets. According to research company FE Trustnet, over the past 10 years he has delivered a cumulative total return of 43.7 per cent, compared with 28.1 per cent for a composite of his peer group.

Mr De Blonay targets companies he thinks are undervalued and exhibit favourable growth prospects, due to characteristics such as proven management or strong products and services. He takes a macro view of the world economy, identifying investment themes and then finding stocks positioned to benefit from them.

Mr De Blonay thinks financial sector shares remain relatively cheap compared with their historical average and banks such as UBS (US:UBS), Barclays (BARC), Goldman Sachs (US:GS) and JPMorgan (US:JPM) could all do well in a more inflationary and higher rate environment. As well as positioning the fund to benefit from this opportunity, he is also seeking to add to companies offering a decent dividend policy and good growth profile.

The future outlook for the fund seems positive, but over the last one, three and five years it has underperformed its benchmark.

However, Adrian Lowcock, investment director at Architas, says the fund is still worth considering despite the poor performance.

"Jupiter Financial Opportunities is biased towards large-cap liquid names, therefore it has been underweight large interest-rate-sensitive names and lower-quality financials, which tend to outperform in [times of] improving economic outlook," he says. "The fund also got hit in terms of currency last year as it was positioned for a remain vote in the European Union referendum. Guy De Blonay is a very experienced manager who has been running this specialist fund since 2010. He's got a lot of expertise and knowledge, which is important given the complexity of financial balance sheets, as you need someone who knows what to look out for."

So if you are a higher-risk investor who anticipates that financial companies - particularly in the US - are set for a comeback, then Jupiter Financial Opportunities might be a good way to capture their return. Buy. EA.

Source: Morningstar, as at 16/01/17, *Jupiter Asset Management, as at 30/11/16

Performance

Source: Morningstar, as at 11 January 2017

Top 10 holdings as at 30/12/16 (%)

Source: Jupiter Asset Management

Sector breakdown, as at 30/11/16 (%)

Source: Jupiter Asset Management

IC Tip Rating