Jupiter absolute return fund presentation citywire the grove

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  • 1.  Jupiter Absolute Return Fund Citywire Wealth Manager Retreat 2013 FOR PROFESSIONAL AUDIENCES ONLY. NOT FOR RETAIL INVESTORS. Presented by: James Clunie, Fund Manager Director Louis Wood, Business Development Director John Tevenan, Business Development Director
  • 2. 2  What are the Fund’s strengths?  The manager has generated strong returns per unit of risk managing a similar fund  Jupiter has the resources, team and focus to develop this fund  The fund has a potential ‘edge’, in single-stock short-selling The views expressed by the fund manager at the time of presentation may change in the future. Past performance is no guide to the future. James Clunie started managing the Jupiter Absolute Return Fund on 2nd September 2013
  • 3. 3  Manager’s long/short track record (1)  SWIP UK Flexible Strategy (from 01.09.09 to 22.04.13) Lipper Global Absolute Return GBP High Lipper Global Absolute Return GBP Low Lipper Global Absolute Return GBP Medium SWIP UK Flexible Strategy A Acc 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% Aug-09 Mar-10 Sep-10 Mar-11 Sep-11 Strong outperformance against the the sector Source: Lipper as of 22.04.13. Past performance is no guide to the future. Mar-12 Sep-12 Mar-13
  • 4. 4  Manager’s long/short track record (2)  SWIP UK Flexible Strategy (from 01.09.09 to 22.04.13) FTSE 100 TR MSCI AC World TR GBP SWIP UK Flexible Strategy A Acc 70% 60% 50% 40% 30% 20% 10% 0% -10% Aug-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Equity-like returns with limited drawdowns and volatility Source: FE as of 22.04.13. Past performance is no guide to the future. Sep-12 Mar-13
  • 5.  Firm and process
  • 6. 6  Jupiter has team strength in Absolute and Total Return  Jupiter manages a series of absolute and total return type funds:  Jupiter Europa SICAV  European long/short equity  Jupiter Strategic Total Return  Conservative multi-assets  Jupiter Absolute Return Fund  Global multi-assets  Managers of these funds have good access to experienced risk managers and to long/short idea generation Source: Jupiter 2013.  Independent firm  Focused on performing for clients  A strong culture of accountability  Industry recognition
  • 7. 7  Investment process Well-researched positions in risk assets… Manager objective: seeks to generate absolute return, independent of market conditions, by investing on a global basis Moderate net market exposure reduces ‘drawdowns’ Aim for positive returns over rolling three year periods Attractive risk adjusted returns Portfolio construction Portfolio positioning Macro view ‘Macro-cognizant’ but not driven by top-down thinking Top-down awareness can generate thematic ideas and assist in risk management Equity selection Evidence-based quantitative screens can highlight ideas Direct contact with company management In-depth company analysis Risk management Willing to take risk when it is likely to be rewarded Disciplined security selection process + Risk Control Specific shortselling risk management process …with the aim of generating solid returns per unit of risk Alpha generation through long and short positions
  • 8. 8  Long book construction Portfolio Construction Portfolio positioning Manager Objective Macro View Equity selection Risk Management  Buy signal from a quantitative screen (e.g. Piotroski score)  Stocks have overly pessimistic earnings estimates  Apparently ‘under-priced’ securities under most scenarios  Firms undergoing restructuring or seeing an improvement in conditions Core positions Tactical positions  Stocks pass a ‘minimum quality’ checklist (see appendix for details) Typically 40 - 70% exposure 30 - 70 positions Not fund restrictions, represents fund manager style.  Positive news-flow in heavilyshorted stocks  Predatory trading opportunities
  • 9. 9  Short book construction Portfolio Construction Portfolio positioning Manager Objective Macro View Equity selection Risk Management  Balance sheet weakness  Signal from stock lending data  Sell signal from a quantitative screen (e.g. Beneish M-score, asset growth)  Suspect accounting policies  ‘Over-priced’ equity, plus a catalyst Core positions Tactical positions  Thematic ideas Typically -10 to -40% exposure 10 – 20 positions Not fund restrictions, represents fund manager style.  Predatory trading opportunities (e.g. likely index deletions)
  • 10. 10  Potential sources of return  Long and short stock positions  Net equity beta (as long and short positions need not balance)  Other sources of return:  Bond holdings  Use of options (from time to time)  Currency returns (usually implicit, but sometimes explicit)  Occasional use of other security types (consideration of a firm’s capital structure)  Returns on cash
  • 11. 11  Risk management  The Fund is subject to the diversification rules for UCITS funds, but includes further risk control measures:  Regular VaR and stressed VaR calculations - aim for stressed VaR to be well below the VaR limit*  Oversight by risk and compliance specialists  Tailored risk management for short positions:  Re-assess as catalysts fade, or when positive new information emerges  Use ‘intelligent’ (i.e. neither rigid nor telegraphed) stop losses - to reduce large loss risk and to temper any aversion to realizing losses  Analysis of stock lending data, to observe the actions of other short-sellers and to guard against ‘crowded exit’ risk Aiming for positive returns over rolling three year periods Source: Jupiter, 2013. *VaR limit: 20% of fund value using a 20 day (forecast) 99% VaR, evaluated using a one year historical model
  • 12.  Potential Edge
  • 13. 13  What is the Manager’s edge?  We believe that the manager’s edge lies in single-stock short selling, via:  A strong understanding of the informational-value of stock lending and shortselling data  A thorough awareness of the risks in short-selling  A combination of quantitative and fundamental analysis of short positions, which can make the fund more robust to shocks An uncommon specialization The views expressed by the fund manager at the time of presentation may change in the future.
  • 14. 14  The Fund’s strengths  Fund Manager has a strong track record with this type of mandate  The right firm and team  A potential investing ‘edge’ The views expressed by the fund manager at the time of presentation may change in the future. Past performance is no guide to the future. James Clunie to manage Jupiter Absolute Return Fund from 1st September 2013
  • 15.  Appendices About Jupiter Investment Policy More about the Investment Process Outlook
  • 16. 16  Introduction to Jupiter  Established in 1985  453 employees including 48 Investment Professionals  Assets under management Investment Trusts, £659m Private Clients, £2,130m  One of Europe’s most successful and respected fund management houses, managing assets of £29.0bn Segregated Mandates, £3,488m  Market cap £1.5bn Mutual Funds, £22,768m Source: Jupiter 30.06.13.
  • 17. 17  Jupiter’s 4 principles: people, philosophy, process and performance  People: Team of 36 fund mangers*     Low fund manager turnover 21 fund managers with Jupiter >10 years 14 managers >£500m in assets No one manager runs >20% of AuM  Performance over 10 years** 1st quartile 4th quartile 14% 14%  Process: Investment process     3rd quartile 7%  Philosophy: Investment philosophy  Freedom to invest:  No house view or  Buy lists  Individual accountability  Leads to high conviction ideas  Avoids biases of committees  Portfolio concentrated on “best ideas”  Do not track the index, high degree of active share 2nd quartile Disciplined use of stock selection themes Direct company contact is key Quantitative analysis to assess valuation Risk management integral to investment process *Source Jupiter as at 30.06.13. **Source: FE, bid-to-bid, reinvested to 30.06.13. Past performance is no guide to future performance. Cumulative performance for funds running 10 years or more. Pie chart = performance weighted by number of funds. Past performance is no guide to future performance. 65%
  • 18. 18  Industry recognition  Jupiter’s range of awards – over 100 in the last 5 years alone – is a testament to our company-wide performance record*  Jupiter’s asset management success…  Talented team  Investment philosophy  Fundamental investment approach *Source: Jupiter, Includes Jupiter Unit Trust Managers Limited and Jupiter Asset Management Limited. Past performance is no guide to the future.
  • 19. 19  Fund management team CIO: John Chatfeild-Roberts Deputy CIO: Stephen Pearson UK Equities Anthony Nutt Richard Curling* Steve Davies Alastair Gunn Ian McVeigh Derek Pound Chris Watt * Ben Whitmore Financials Guy de Blonay Robert Mumby European Equities Alexander Darwall Michael Buhl-Nielson Cédric de Fonclare Gregory Herbert* Stephen Pearson Luca Emo Javier Gella Emerging European Equities Elena Shaftan Colin Croft US Equities Sebastian Radcliffe* Environmental Investment Charlie Thomas Chris Watt* Abbie Llewellyn-Waters Sustainable Investment Research Emma Howard Boyd Mark Evans Jon Wallace Multi-Manager John Chatfeild-Roberts Peter Lawery Amanda Sillars Algy Smith-Maxwell David Lewis Far Eastern Equities Philip Ehrmann* Ben Surtees Charles Sunnucks Indian Equities Avinash Vazirani Amélie Thevenet Japan Equities Simon Somerville Dan Carter Corporate Governance Cynthia Pinniger Ashish Ray Investment Companies Richard Curling* Oliver Burns Asian Equities Treasury Caroline Horsford Source: Jupiter as at 31.07.13. *Please note that some fund managers are members of more than one team. Global Emerging Markets Kathryn Langridge Philip Ehrmann* Fixed Interest & Multi-Asset Miles Geldard Ariel Bezalel Lee Manzi Rhys Petheram Vikram Aggarwal Hilary Blandy Joseph Chapman Luca Evangelisti Harry Richards Nicole Weiss Global Absolute Return James Clunie Philip Gibbs Global Equities Gregory Herbert* Sebastian Radcliffe* Payal Bagchi
  • 20. 20  Manager profile 2013 – Jupiter Asset Management Fund Manager, Global Absolute Return James Clunie 2007 – 2013 Scottish Widows Investment Partnership Investment Director, Equities Jupiter Asset Management 2003 – 2007 University of Edinburgh Senior Lecturer in Finance, Management School & Economics 2000 – 2002 Aberdeen Asset Management Head of Global Equities 1989 – 2000 Murray Johnstone International Director & Head of Asset Allocation Qualifications BSc Mathematics & Statistics and PhD Management (Edinburgh University) CFA Charterholder Fund Management Director:
  • 21. 21  Investment policy  The Fund may invest globally, long or short, in a variety of asset classes, including equities, bonds, cash and currency transactions  Short positions must be taken via derivatives, in accordance with UCITS rules  The Fund may be concentrated in any one or a combination of such assets  There will be an emphasis on equity long/short, as this is where the manager has most experience and knowledge. However, the freedom to move up a firm’s capital structure, across geographies or into other asset classes is valuable, if used with respect
  • 22. 22  More about the investment process  Primarily a ‘bottom-up’ security selection process  ‘Macro-cognizant’ to help understand risks and themes  Evidence-based quantitative screens (e.g. Piotroski scores, asset-growth rankings) assist in identifying long and short candidates  Other sources of ideas include: colleagues, company meetings, sell-side analysts, competitors, mosaic information and background reading  Fundamental analysis (using Holt and/or DCF with sensitivity analysis) is used to estimate a fair value range. The manager reads the annual report and tests each stock idea against a stock ‘checklist’
  • 23. 23  Stock checklist Type of Measure Specific Question Value Value Quality Quality Momentum Momentum Reversal Accounting Accounting Asset growth ESG Balance sheet Balance sheet Issuance Earnings Revisions Earnings Estimate dispersion Visibility Is the stock cheap on DCF? Is the stock cheap on conventional value metrics? Is the RoE, RoCe and gross profitability high? Is the Piotroski score high? Is 6 month momentum positive? Is 18 month momentum negative? Are accruals low? Are accounting policies 'clean'? Is asset growth low? Is the firm well governed? Is the Altman z-score high? Are other balance sheet ratios strong? Does the firm buy-back stock/ issue rarely? Are revisions positive? Are eps forecasts in a tight range? Does the stock have low visibility?
  • 24. 24  How will the portfolio be structured?  The portfolio will tend to have a slightly positive equity beta, as long ideas will generally exceed actionable short ideas. The fund may be net short, though, if short ideas should predominate.  Gross and net positions will tend to be greater when measured market ‘turbulence’ is low, or when general risk aversion is overtly high.  The style of the fund will tend to be value/ quality but can vary with market conditions.  Turnover in short positions (generally around 100-400% per annum, one-sided) should exceed that for the long positions (around 20-50%)  A small proportion of the fund is likely to be in less liquid securities.
  • 25. 25  How will the portfolio be structured?  From time to time, there may be option positions in the fund. This will include:  writing covered calls in stocks that have achieved price targets  writing slightly out of the money put options on preferred stocks after market corrections.  Other types of security (e.g. bonds, convertibles) will be included from time to time, especially during market dislocations  In the absence of strong new long or short ideas, the manager is willing to hold substantial cash deposits (i.e. short-term deposits at major banks and cash at the custodian bank) or ‘near-cash’ (Treasury bills). This can improve the return per unit of risk taken, and provides ‘optionality’ should any market dislocations occur.
  • 26. 26  Risks  Being a global, multi-asset long/short mandate, the fund is potentially exposed to all types of investment risk, including:  Equity market risk (net equity beta)  Stock selection risk (with theoretically unlimited loss potential on short positions)  Interest rate and credit risk on bond holdings  Changes in volatility affecting option prices  Option writing has potential for large losses  Forced position covering if VaR limit is breached  Liquidity risk (most likely to occur with short positions where the need to cover may arise)  Currency exposure risk.
  • 27. 27  Jupiter risk management process: Three line defence approach Portfolio Construction Manager Objective Portfolio positioning Macro View Equity selection Individual Fund Manager Daily, weekly, monthly, quarterly reports Independent in house monitoring Chaired by Head of Investment Risk Monthly meeting Portfolio-Review Committee Charles River, Beauchamp, Bloomberg, RiskMetrics, Reuters, Holt Chaired by Head of Compliance Quarterly meeting Chaired by CFO Quarterly meeting Day to day reporting Factor Risk: BARRA Aegis Attribution: FactSet / BARRA, Investment Risk Committee Chaired by CIO Quarterly meeting Risk Management Analysis Risk and performance: RiskMetrics, BARRA, FactSet, Bloomberg, Beauchamp Compliance Monitoring Committee Risk Committee Compliance review Internal audit review Dealing restrictions / mandate breaches Charles River Independent review
  • 28. 28  Strict risk management at fund level Portfolio Construction Manager Objective Portfolio positioning Macro View Structure Dynamic Process Equity selection Risk Management  Long positions typically below 5%; short positions typically below 3%  Typical Net Exposure: +30% to 35%  Gross Exposure Fund Restriction: 200% (typical range 70% -80%)  Net and gross exposures vary with idea generation and appetite for risk  Use listed and OTC derivatives (futures and options) to manage risk at portfolio and position level.  Maintain a high level of portfolio liquidity      Weekly risk review: portfolio analytics and the investment team Independent Risk Management Oversight (Riskmetrics) Analysis of portfolio risk at stock, industry and country levels, Portfolio VaR, composition of VAR by position and risk factors. Fund specific stress tests
  • 29. 29  Short selling risk management  Short positions tend to be more trading-oriented than long positions (due to the distribution of returns on stocks)  Continuous review of news releases and new information around firms that have been shorted  Re-assess when positive new information emerges, or when catalysts fade  Use of ‘intelligent’ stop losses (i.e. stop losses that are neither rigid nor telegraphed) to reduce the risk of large losses and to force acceptance of mistakes  Daily review of stock lending data, to observe the actions of other short-sellers and to guard against ‘crowded exit’ risk
  • 30. 30  3 years risk/reward Cumulative Return from 22.04.10 to 22.04.13 25% 20% 15% 10% James Clunie - SWIP 5% 0% -5% -10% 0 2 4 6 8 10 Annualised Volatility from 22.04.10 to 22.04.13 Lower range of volatility Source: FE from 22.04.10 to 22.04.13. Past performance is no guide to the future. 12 14 16
  • 31. 31  Outlook (what things do we know?)  Developed market central banks are ‘guiding’ for policies of ‘financial repression’  Medium-term return outlook for emerging market equities are better than those for developed markets (lower starting valuations)… but short-term news-flow is negative  ‘Buy and hold to maturity’ returns from bonds will be low  On a global basis, liquidity is supportive for risk assets The views expressed represent those of the manager at the time of writing and may change in the future.
  • 32. 32  Disclosure Jupiter Unit Trust Managers Limited (‘JUTM’) and Jupiter Asset Management Limited (‘JAM’) are both registered in England and Wales (nos. 2009040 and 2036243). The registered office of both is 1 Grosvenor Place, London SW1X 7JJ. JUTM and JAM are authorised and regulated by the Financial Conduct Authority whose address is 25 The North Colonnade, Canary Wharf, London E14 5HS. This presentation is intended for investment professionals and not for the benefit of private investors. However anyone attending the presentation or who has the opportunity to view the accompanying slides should bear in mind that the value of an investment in a unit trust and the income from it can go down as well as up. It may be affected by exchange rate variations and you may not get back the amount invested. Initial charges are likely to have a greater proportionate effect on returns if investments are liquidated in the shorter term. Quoted yields are not guaranteed. Past performance should not be seen as a guide to future performance. The Jupiter Absolute Return Fund aims to profit from falls as well as rises in value of market indices, currencies or shares by using derivatives. This may cause periods of high volatility for the prices of units in the Fund. The Fund may incur losses greater than its initial investment into derivative contracts (although unit holders will not incur any liabilities beyond their initial investment). The Fund is able to gain market exposure in excess of its net asset value which can increase or decrease the value of units to a greater extent than would have occurred had no additional market exposure beyond the Fund’s net asset value been in place. The Fund’s value is unlikely to mirror increases and decreases in line with the respective markets it is invested into. Performance fee is 15% of outperformance above a hurdle rate, 3 month Sterling Libor, subject to a High Water Mark. Further information is contained within the Key Investor Information Document (KIID). This Fund can invest more than 35% of its value in securities issued or guaranteed by an EEA state. The KIID, Supplementary Information Document (SID) and Scheme Particulars are available from Jupiter on request. For your security we may record or randomly monitor all telephone calls. If you are unsure of the suitability of an investment please contact your financial advisor. Any data or views given should not be construed as investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.
  • 33. 33  Contact’s- UK Client Coverage Group Louis Wood lwood@jupiter-group.co.uk Business Development Director 0207 314 4788 Wealth Management, UK Client Coverage 07900 055 188 Bryan Bushnell bbushnell@jupiter-group.co.uk Business Development Manager 0207 314 4728 Wealth Management, UK Client Coverage 07920 188 186
  • 34. 34  Contact’s- Global Financial Institutional Group John Tevenan jtevenan@jupiterinternational.com Sales Director 0207 314 7491 Global Financial Institutions Group EMEA Client Coverage Team 07841 451425 Michael Daly Client Relationship Manager Global Financial Institutions Group EMEA Client Coverage Team mdaly@jupiterinternational.com 0207 314 6481 07887 455967