“In a raging bull market, young fund managers can often generate stellar performance but, on balance, experience trumps youthful enthusiasm.” So wrote John Chatfeild-Roberts in his 2006 book, Fundology. Twelve years later, Jupiter Merlin’s head of strategy on independent funds says the approach still stands.
With the bull market entering its ninth year and most markets looking expensive, you might expect Chatfeild-Roberts to be refreshing the £7.5bn multi-manager range with grey-haired talent.
Instead, the multi-manager has recently pulled £300m from Neil Woodford and placed most of it with Evenlode Income fund manager Hugh Yarrow, who is almost two decades younger.
“I think he’s got an old head on young shoulders,” he says of Yarrow. “He’s not your typical bull market, sky’s-the-limit investor.”
The £2bn Evenlode Income fund features across the Jupiter Merlin onshore range, bar the Worldwide portfolio, which focuses on international equities. Chatfeild-Roberts and his team own just under one third of Evenlode Income assets, which they have been invested in since it was just over £50m in assets.
Chatfeild-Roberts will not be drawn on specifics as to why he dropped Woodford due to a team policy not to comment publicly on fund exits. “We may want to buy back people at some stage in the future,” he says.
But speaking generally on why they would exit a position, he says: “Sometimes it happens because we’ve made a mistake, sometimes it happens because we think the environment has changed and sometimes it happens because a manager has left or because they’ve gone off the rails. Or you might just have a better idea.”
Despite efforts to remain discreet, the Woodford exit made headlines as Chatfeild-Roberts had been a longstanding backer of the fund manager since his Invesco Perpetual days. The portfolios had held close to £1bn in 2015, but Jupiter’s gradual exit from the fund represented the first in a series of hits on the back of underperformance. Architas and Aviva followed suit shortly after.
An £800m allocation to Fundsmith Equity is where investors can find experience in the portfolio: Terry Smith, the star fund manager running the £13.6bn fund, is one birthday shy of retirement age.
However, Chatfeild-Roberts says Fundsmith Equity will underperform if value makes an overdue comeback. “Growth has had a jolly good run for a long time, but we’ve got a foot in both camps,” he says, highlighting the range’s allocation to value manager Ben Whitmore, who runs Jupiter UK Special Situations, Income Trust and Global Value.
The Jupiter Merlin team is certainly not investing for a bull market currently. In fact, Chatfeild-Roberts says he is not “massively positive about anything” right now. “The big picture is America raising interest rates and withdrawing quantitative easing, alongside tapering in Europe,” he says.
“You’ve got no net new money coming in. I’m pretty sure that QE has pumped up asset prices, so if we’re getting a removal of QE at the margin, that’s got be letting air out of the system.”
Fee pressures
The Jupiter Merlin multi-manager range has not been immune to outflows itself. It suffered £223.8m net outflows in Q4 2017, according to Morningstar.
“Fund-of-funds have a headwind because the regulator is very keen on fees,” Chatfeild-Roberts says.
However, he says multi-manager funds are more transparent than model portfolios and private client offerings. “If you’ve got a segregated portfolio, you don’t get a single number to say what it’s costing,” he says. “To my mind, model portfolios are skirting around all these issues, whereas we’re transparent.”
Performance has been mixed across the range. The Balanced and Growth portfolios are top quartile over five and 10 years, while the largest fund in the range, the £2.9bn Jupiter Merlin Income portfolio, is third quartile over five years and second quartile over 10 years. The Worldwide portfolio, which is part of the IA Global sector, is fourth quartile over five years and third quartile over 10 years.
“It’s pretty aggravating. The reason for that [underperformance] is we have not taken on enough risk. We have not had enough in emerging markets,” Chatfeild-Roberts says.
However, he is hopeful the funds will produce better relative returns in the next few months. “When you have not taken on much risk, you would hope to do better in a downturn,” he explains.
