Jupiter launches fund of absolute-return funds

Jupiter Merlin Real Return launched on 9 July and targets a return, net of fees, of 3 per cent above consumer prices index (CPI) inflation over three-year rolling periods, calculated on a monthly basis. It will invest at least 70 per cent of its assets in other funds, and its managers will look to invest it in a similar way to the Luxembourg version of the fund. It will have around 63 per cent of its assets in absolute-return funds – mostly long-short strategies, 27 per cent in equity funds, and 5 per cent in each of cash and physical gold. However, the UK version will have slightly different holdings as some of the funds the Luxembourg version invests in are now closed to new investment.

Jupiter Merlin Real Return will initially have no exposure to fixed interest as its managers think long-short equity absolute-return funds offer better opportunities. But it may invest in fixed interest and property in future. The fund can also use derivatives to reduce risk, minimise costs, and generate additional capital and/or income.

The fund's managers have more than 18 years’ experience investing in long-short portfolios and have run Jupiter Merlin Real Return Portfolio since its launch in 2013. Between its launch and 30 June 2018 this fund has returned 40.9 per cent, and made positive returns in three of the past four calendar years.

Source: Jupiter Asset Management as at 30/06/18

Darius McDermott, managing director at Chelsea Financial Services, said although the fund's managers' performance record is good, its 27 per cent exposure to equities means if markets fall this fund may be more likely to make a negative return.

But Jason Hollands, managing director at Tilney Group, said: "In theory, the funds Jupiter Merlin Real Return invests in should be able to take advantage of stocks falling as they have the ability to short [bet on a share price falling]."

Jupiter Merlin Real Return is available on platforms including Alliance Trust Savings and Hargreaves Lansdown, and has an ongoing charge of 1.53 per cent. Unlike a number of absolute-return funds, it does not have a performance fee.

Jupiter says it launched the UK domiciled version of the fund due to investor demand. "After a five-year equity bull market and a 10-year bond bull market investors may be looking to diversify their portfolio allocation and invest in a strategy that offers exposure to the growing universe of absolute-return funds, while leaving fund selection to an experienced team of fund managers," said a spokesperson for Jupiter.

Gavin Haynes, managing director at Whitechurch Securities, said: "This is a tricky area to invest in as it's hard to compare one targeted absolute-return fund with another, as each has its own mandate and risk/reward strategy. But John Chatfeild-Roberts and his team have a good track record of being able to select good fund managers in this area."

Other funds of funds with substantial exposure to absolute-return strategies include Janus Henderson Multi-Asset Absolute Return (GB00B8113P38) which has 22.1 per cent of its assets in hedge funds and 15.8 per cent in absolute-return funds.

RIT Capital Partners (RCP), meanwhile, has 22 per cent of its assets in equity hedge funds, and 22 per cent in absolute-return and credit funds. And Henderson Alternative Strategies Trust (HAST) has 21 per cent of its assets in hedge funds.

A drawback of investing in a fund of funds is that you incur two layers of fees – those of the the fund you invest in, and those of the funds it invests in. And many absolute-return funds also have performance fees.

Jason Hollands thinks Jupiter Merlin Real Return might interest investors looking for some equity exposure with a more defensive tilt. "But you could also just buy some of the underlying funds yourself rather than delegate the investment selection and pay additional fees," he added.

Cumulative performance

Source: Jupiter Asset Management as at 30/06/18