Jupiter Income: August 2023 fund update

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.

• The fund is managed by Ben Whitmore who is an experienced and disciplined value investor
• The process focuses on investing in fundamentally good companies that are out of favour
• We think Ben Whitmore has the experience, skill and resources to deliver good long-term returns to patient investors
• The fund features on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

Jupiter Income focuses on undervalued, mainly UK companies which could pay a dividend. This approach can mean the fund falls out of favour through certain periods of the market cycle. The manager runs a concentrated portfolio of 35-45 stocks, so each position can influence performance for good or bad which can increase risk.

We think the fund would work well alongside other UK equity income funds as it has quite a distinct value style bias which could add diversification to either an income focused or more general portfolio.

Manager

Ben Whitmore is an expert when it comes to unearthing undervalued companies and has been managing funds for over two decades. He is assisted by Dermot Murphy, and the two have been working together for a number of years. As well as Jupiter Income, Whitmore manages Jupiter UK Special Situations and Jupiter Global Value Equity, using the same process and value bias. Whitmore is also a director at Jupiter, and head of the value equities strategy, a role that we feel is complementary to his fund management responsibilities. Whitmore and Murphy are also supported by analysts Brian McCormick and Ellen Mann in the value team.

Process

The fund aims to provide investors with income and capital growth over the long term by investing in stocks that the managers believe are undervalued by the wider market. This focus on out-of-favour companies is called value investing. This style has struggled in recent years as the market has favoured companies with high growth potential, but in recent months value investing has had more of a resurgence, though it’s still some way behind the growth style over that period.

The team look for companies with strong balance sheets, low valuations and a different set of risks from others in the portfolio in order to diversify potential returns. There are companies from a variety of sectors and industries within the fund. Holdings are chosen on their individual merits and are unrelated to how the index looks. The managers look to uncover unloved stocks capable of recovery and paying increasing dividends. As such there will always be an element of uncertainty in the investment case, but this should be reflected in the price of the shares.

The managers’ contrarian approach can mean the fund looks quite different to the index at times. Whitmore is also willing to invest in some companies with a lower yield than some peers if he identifies the potential for a recovery in the share price.

A key characteristic of companies in the portfolio and a feature of the investment process is balance sheet strength. This allows temporarily weakened or out-of-favour companies to remain solvent for longer, whilst they hopefully recover.

In recent months, Whitmore has reduced the fund’s investment in defence company BAE Systems after a strong period of performance.

Please note the fund invests in Hargreaves Lansdown plc.

Culture

Whitmore and Murphy run an established value franchise at Jupiter, where they are supported to manage money in a differentiated way. Jupiter is a listed company, traded on the London Stock Exchange. Employees’ bonuses are paid in part in deferred cash, and part in Jupiter shares which are released over time. This encourages a long-term focus, which we believe aligns managers’ goals with those of their investors.

ESG integration

Jupiter’s approach to ESG is fund manager led, so the fund managers themselves are responsible for implementing ESG in their investment decisions. They typically approach ESG issues with a materiality-based approach, meaning they focus on ESG risks most material to each company. The firm also subscribes to several third party data providers (including Sustainalytics, RepRisk, Bloomberg, ISS and MSCI) which offer information that fund managers can use in their research. Where red flags are raised, the managers go away and investigate. The firm offers a small number of exclusions and sustainability-focused funds, including the longstanding Jupiter Ecology fund.

Managers are held to account for their ESG decision making and are frequently challenged on their ESG analysis by the in-house Governance and Sustainability team. The team is also available to provide specialist ESG knowledge.

We like that engagement is not delegated to a separate department. Instead, the fund manager who made the decision to invest in the company leads engagement activity directly, allowing more meaningful and relevant engagement. The firm also votes at all shareholder meetings and provides a monthly voting record, available via its website, including rationale where it votes against management. More information about the firm’s ESG policies, voting record and engagement case studies can be found in its annual Stewardship report.

Cost

The fund has an annual ongoing fund charge of 0.94% but through HL, clients can secure an ongoing saving of 0.34%, reducing the net ongoing charge to 0.60%. Part of this reduction is paid as a loyalty bonus, which could be taxable if held outside of an ISA or SIPP wrapper. The HL platform fee of up to 0.45% a year also applies. Part or all of the annual charge is taken from capital rather than income generated, which could boost income, but reduces the potential for capital growth.

Performance

Ben Whitmore has managed this fund since January 2013. From then until the end of July 2023, the fund has delivered returns of 102.22%*, ahead of the FTSE All Share index return of 98.21% over the same period.

Whitmore has also managed various UK equity value/income portfolios over many years prior to this. More recently he has also managed global value portfolios. Over his career he has performed well, significantly outperforming the IA UK Equity Income peer group. Past performance is no guarantee of future returns.

Over the last 12 months, to the end of July 2023, the fund has delivered returns of 6.96%, ahead of the FTSE All Share index return of 6.09%, and ahead of the IA UK Equity Income sector average return of 2.86%. Our analysis suggests that stock selection has added value over this period.

We expect the fund to hold up better in a falling market, but to normally lag a rising market. We think Ben Whitmore has the experience, skill and team resources to deliver good long-term returns to patient investors, although there are no guarantees. All investments fall as well as rise in value, so investors could get back less than they invest.

At the time of writing, the fund yields 4.48%. Income isn’t guaranteed, and yields aren’t a reliable indicator of future income.

Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2023.

Important information – Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.

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