Jupiter has clearly been quite strategic with the managers it has chosen to bring over, for reasons beyond the fact they account for 87% of Merian’s assets.
While Ben Whitmore, manager of the Jupiter UK Special Situations fund, is going through a rare rough patch – lagging the FTSE All Share over the past five years – he remains one of the most consistent managers in the peer group.
While there are clear strengths of these franchises run by these managers, at least two of them also carry quite a lot of index risk, which the merger does nothing to solve, however. Given a period of sustained underperformance, quite a significant volume of cash could be vulnerable to discount beta alternatives.
Small Cap Gem
Daniel Nickols is something of a phenomenon. It is hard to think of a more consistent UK Smaller Companies manager. Sure there are flashier ones who have created more value – Liontrust duo Julian Fosh and Anthony Cross come to mind, or micro-cap legend Giles Hargreave – but I can’t recall one who has continued to deliver over such a long period of time, steadily outperforming the index with metronomic precision.
Since first becoming eligible for a Citywire rating in 2004, he has only failed to receive one 17 times. He has collected an impressive 178 ratings, a run that includes 80 AAA, 31 AA, 25 A and 42+ ratings. That means he has outperformed in 91% of three-year rolling monthly windows since the beginning of his career.
His only difficult patch came immediately after the credit crisis, and, save for that blip, for nearly two decades, he has very quietly gone about his business of being excellent and sticking to what he knows.
Given the capacity constraints in UK smaller companies, the fund is never going to be a cash cow, but with the domestic economy looking to stage a recovery in post-Brexit Britain, having an asset like Nickols in your corner is a real boon for Jupiter and its brand.
In addition, mid-cap manager Richard Watts also agreeing to join is key to ensuring that the process remains intact, as Nickols has worked closely with him for more than a decade and has never been afraid to include mid-caps in his portfolio.
This might sound counter-intuitive given the dire performance of his Merian Global Equity Absolute Return fund, which fell 15.6% in 2019, resulting in outflows of £5.8bn over the year. Indeed this atrophy is a major factor in Jupiter’s ability to make this bid. However, he brings with him a wealth of global equity expertise.
One of the areas he is strongest in is Asia Pacific Excluding Japan, with the £380m Merian Asia Pacific fund returning 70.3% over the past five years, compared with a 58.3% rise in the value of the MSCI AC Asia Pacific Excluding Japan TR index.
Jupiter has its own Asia Pacific franchise, led by Jason Pidcock. However, his strict income mandate complements Heslop’s more growth-orientated positioning well.
While Pidcock has never managed to replicate the performance that saw Jupiter poach him from BNY Mellon in 2015, primarily due to income stocks being out of favour, there are signs that this is changing.
Since the launch of the Jupiter Asian Income fund in March 2016, the fund has risen 60.1% to the index’s 76.2% gain. However, over the past 12 months, the fund has delivered 11.8% to the index’s 11% rise.
The caveat with Heslop, though, is the extent to which he was actually running the funds he was listed on. At last count, he was named manager of 16 funds. Although that list includes some duplication, that is clearly too much for one individual to run day-to-day.
But with Amadeo Alentorn, with whom Heslop co-manages 13 portfolios, also coming across, then excluding Mike Servent, the management team is still in place.
The worry for Jupiter is that many of the assets Heslop and Alentorn run are in very tough sectors to outperform and where passive products have been having a field day, namely Equity – North America and Equity – Global.
In both categories, they don’t have the performance to feel particularly sure-footed. In Equity – North America, the flagship £2.5bn Merian North American Equity fund is lagging the S&P 500 over one, three and five years. In Equity – Global, the £1.1bn Merian Global Equity fund is behind the MSCI World over one and three years.
All performance figures in GBP to 14 February unless stated. Source: Citywire Discovery, Morningstar and Eikon.