Jupiter Absolute Return Fund (ISIN: GB00B5129B32) has been moved from broker Hargreaves Lansdown's Wealth 150 list of favourite funds due to its performance fee and lagging peers in rising markets. The launch of the fund just under three years ago was greeted enthusiastically due to fund manager Philip Gibbs' success with a similar offshore fund and Jupiter Financial Opportunities, which was one of the best performing open-ended funds while he managed it. But Jupiter Absolute Return Fund has not made the same outstanding returns.
Over one year it is in the second quartile of the Absolute Return Sector, and year to date it's in the third. Hargreaves says Mr Gibbs should have used the fund's full flexibility to capture gains during rising markets.
Hargreaves also objects to the fund's 15 per cent performance fee on returns in excess of three-month sterling Libor. Historically, Libor has generally been higher than inflation, meaning that a fund with this charging structure would need to deliver positive returns after inflation before a performance fee could be levied. But interest rates have been significantly below the rate of inflation over the past few years, meaning funds can still charge a performance fee even if they have failed to keep pace with inflation, provided they beat Libor.
However, the fund's total expense ratio of 1.47 per cent is still lower than most absolute return funds and Hargreaves admits that "the cautious positioning means the fund has generally sheltered capital well during falling markets and is likely to remain largely uncorrelated to stock markets".
Jupiter said: "We do not feel it is appropriate to be chopping and changing the fund's charging structure for what we believe is a unique, temporary situation in markets -, for example, Libor was ahead of retail prices index inflation between 2002 and 2008. Any changes would require us to seek unit holder approval, and given that a performance fee has not been charged since the fund's launch, investors have simply been charged a 1.25 per cent annual fee, 0.25 per cent less than if we had a higher annual fee instead."
