Jupiter European: December 2022 fund update

Mark Heslop and Mark Nichols have over four decades’ combined experience of
investing in Europe

The managers invest in companies they feel have unique products that others
struggle to replicate to provide sustainable growth over the long term,
although nothing is guaranteed

Long term performance has been positive, but the fund has struggled to
perform recently

The fund does not currently feature on the
Wealth Shortlist of funds chosen by our
analysts for their long-term performance potential

How it fits in a portfolio

The fund aims to grow investors’ money over the long run. The managers of
the Jupiter European fund favour the
larger, more stable businesses, investing in the ones they believe offer the
best growth potential over the long run. They prefer businesses who possess
a strong competitive advantage that others will struggle to replicate. We
think the fund could be a good choice for exposure to Europe as part of a
global investment portfolio, or sit alongside other European funds focused
on using different investment styles.

Manager

Mark Heslop and Mark Nichols joined Jupiter from Columbia Threadneedle (CT)
in 2019 and have a combined total of over 40 years’ experience investing in
Europe. They took over management of the Jupiter European fund in October
2019.

Prior to this, Heslop was a part of CT’s European equities team for 11 years
and was appointed lead manager of their European Smaller Companies Fund in
2013. Nichols joined CT in 2015 and became co-manager of the European Select
Fund, which currently features on our Wealth Shortlist.

Since joining Jupiter, the managers have built up a team of five investors.
This includes Phil Macartney, a fund manager with 14 years’ experience
across UK and European companies, Sohil Chotai, an assistant fund manager
with 9 years’ experience of analysing European companies, and Nikisha
Mistry, who has 4 years’ experience as a European equities analyst.

Macartney is named co-manager on the Jupiter European Smaller Companies Fund
and Chotai is co-manager of the European Special Situations Fund. Despite
the added responsibility, each of the European funds share a similar
investment process, so we feel the managers can comfortably manage their
commitment to each.

Heslop and Nichols also view it as team-based approach, so encourage
discussions, debate, and the sharing of ideas across each European fund.

Process

The managers aim to identify world class companies across the European
continent. These companies need to have unique products or services which
others struggle to replicate but also be able to grow steadily over the long
term. Identifying companies that have a global reach in regions like the US
or Asia is also important, as they are less likely to be as reliant on the
state of Europe’s economy. As a result, they’ll tend to invest in a
concentrated list of companies they have a high level of conviction in. This
means each one can have a meaningful impact on performance, and this
increases risk.

The managers focus on holding these companies for the long run in order to
benefit from steady growth, rather than trying to time the market or making
short-term decisions. The managers generally prefer to keep portfolio
turnover low, keeping buying and selling to a minimum. Though, there have
been a few changes to the fund this year.

One of the recent changes was the investment in Sandvik. The engineering
company specialises in mining and rock excavation, including the
manufacturing of the machinery. It’s welcomed some corporate changes and has
refocused its mining business, which the team believe could help its
potential for long term growth. L’Air Liquide, a speciality chemical
provider and Universal Music Group, an entertainment business based in the
Netherlands, were also added to the fund.

There have also been some investments the team have reduced. They decreased
their investment in pharmaceutical giant Novo Nordisk. The business has seen
an increase in demand for three of its new diabetes and obesity drugs,
causing their share price to rise, so the managers wanted to take some
profits. The investment in Experian was also reduced following some strong
performance. Temenos, a banking software company, and DiaSorin, a medial
diagnostics and research company, were sold due to reduced conviction in
their long term prospects.

Culture

The fund managers at Jupiter are given autonomy to invest the way they see
fit. They believe this will benefit investors over the long run, but the
autonomy comes with an appropriate level of challenge from others in the
business. This business setup allows Nichols and Heslop to focus on fund
management, their team, and maintain flexibility.

Each manager is incentivised in line with the performance of their funds
over various timeframes. We think this aligns their interests with those of
investors and helps the managers to focus on delivering strong performance
for clients.

ESG integration

Jupiter’s approach to ESG (Environment, Social and Governance factors) is
fund manager led, so the fund managers themselves are responsible for
implementing ESG in their investment decisions. Each manager is held to
account for their ESG decision making and are frequently challenged on their
ESG analysis by the in-house Governance and Sustainability team.

All fund managers at Jupiter receive support from these teams, drawing on
their specialist ESG knowledge. Where red flags are raised, the managers go
away and investigate. Nichols and Heslop also form their own views on ESG
issues and incorporate them into their research, believing them to be
important to the long-term quality of a business.

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 ongoing annual charge for this fund is 0.99%. This makes it one of the
more expensive funds in the Europe sector. The HL platform fee of up to
0.45% per year also applies.

Performance

Since Heslop and Nichols took over the fund in October 2019, performance has
been mixed. The fund held up relatively well during the first two years
under their tenure, driven largely by the tailwinds of their preferred style
of investing. Though, past performance is not a guide to future returns.

More recent performance hasn’t been as strong though. Over the last 12
months, the fund fell 15.29%* which is significantly more than the broader
European index and the average return of peers. Growth fell out of favour
with investors, paving the way for value investing. This means that
companies considered undervalued, or those undergoing a recovery, held up
better. The managers invest a small amount in these types of companies so
were unable to benefit from the associated gains.

European markets also continue to be impacted by spiralling inflation,
rising interest rates and higher energy costs. This meant that certain
sectors including energy, utilities and banks have held up well. The
managers tend to be underweight in these sectors, compared to the market, so
missed out on the gains from each of the sectors.

There have also been a number of companies in the fund that detracted from
performance over the same period.

Grifols, which is a pharmaceutical company focused on plasma therapies, was
one of the poorer performing companies this year. It took on more debt
during the pandemic and has been under pressure due to the decrease in the
usual number of plasma donations they receive. Sportswear and clothing
manufacturer, Adidas, and software provider, Dassult Systemes, were also
among the worst performers this year.

On the flip side, there have been a number of investments that have held up
well and delivered good returns. Novo Nordisk was one of the strongest
investments this year, for the reasons noted earlier. Edenred, a payment
solutions provider, and Wolters Kulwer, a company that focuses on providing
software and business solutions, also helped drive performance.

Annual percentage growth

Past performance is not a guide to the future.
Source: *Lipper IM to 30/11/2022.

More about Jupiter European, including charges

Jupiter European Key Investor Information