Industry stalwart Anthony Nutt
says he is completely confident in the positioning of his £2bn Jupiter Income
fund, in spite of the portfolio coming under fire for underperforming its benchmark over three, five and 10-year periods.
Below-average returns in three of the last five calendar years have pushed the fund into the third quartile of its IMA UK Equity Income sector over the last decade. However, Nutt says his focus on the long-term will prove the doubters wrong.
"We have trading and economic conditions that will remain as they are for the next decade – maybe even two," he said.
"As has always been the case, the hardest thing to call is timing. We can all agree stocks are good value, which are cheap, which should lose value, but timing when this happens is often more luck than judgment."
"There’s a degree of desperation in the markets at the moment, with the long/short industry trying to eek out returns. In my view, investing for the short-term is not a good thing for the investor, but investing for the long-term is a very good thing for the investor."
"Investing short-term at the moment is no more of a skill than being in a casino at this point in time,” he added.
Performance of fund vs sector and index over 10-yrs
Source: FE Analytics
Nutt (pictured right)
thinks renewed optimism in the markets has been overstated and that reinvesting dividends is the best way to offer a sustainable return.
"I said on record in 2000 that the FTSE wouldn’t get back to record levels in my lifetime, and I maintain that," he said.
"To get back to 6,900 is a big ask. If you look at the constituents of the index, you have a huge portion in oil, pharmas and telecoms. I can’t see what is going to send it to that level."
The manager has experienced underperformance in the past, and has learnt that trying to force returns is a sure-fire way of losing investors money. He points to those jumping on the TMT bandwagon in the build-up to the dot com crash as a good example.
"I’ve seen a lot of phases over a time period," he said. "Look at Warren Buffett. He bought a load of companies in 1960, at a time when the stock market was not attractive. However, he liked the underlying credentials of the companies – many of which he still holds today."
"I have a similar approach to investing. I have an extremely low turnover – on average around 8 per cent annually – and though I make mistakes from time to time, I feel sure and confident in what I’m doing over the long-term."
Nutt acknowledges that this way of investing is not for everyone, and says investors should know his view on the short-term before buying the fund.
"The time horizon is something an investor would have to share with me," he continued. "The first thing an investor should do is work out how long they want to invest for, and then what manager is appropriate."
The manager points to his long-term standing on the pharmaceuticals and mining sectors in recent years.
"During the 1980s, GlaxoSmithKline was my biggest marginal contribution to risk, but then for about 15 years I didn’t have anything in pharma stocks," he commented.
"In 2000 I felt there was huge potential for expansion in China, and mining became my biggest position, but from the mid-2000s I’ve had pretty much nothing in the sector and went back into pharmas."
"As you can see, my sector calls are very, very long-term."
A zero position in mining is one of the main reasons why Nutt underperformed so considerably in 2009 – his fund was up 14.77, compared with 30.12 per cent from the FTSE.
With the exception of HSBC, the manager says banks are currently "uninvestable" in the medium-term – in direct conflict with colleague Guy de Blonay
, which reflects the independence of managers at the firm
– and that he would only take a position in the sector once they have recapitalised.
Another big contribution to underperformance in recent years, which the manager acknowledges as a mistake on his part, was a significant position in media in the lead-up to 2008. He held Yell – now known as Hibu – and Johnston Press, which are both now penny stocks.
"They’re now on one-times earnings," he said. "I think the media space will come back, but I picked the wrong stocks quite frankly."
Performance of stocks
Source: FE Analytics
Nutt still holds both in the portfolio, but they have less than a 0.1 per cent weighting.
"You have to have a degree of humility as a fund manager, but we should be judged by the time period that the investor bought into. If they want to judge me over one day, that’s fine, but that’s not what I’m aiming for."
Jupiter Income has a minimum investment of £500 and a total expense ratio (TER) of 1.69 per cent. It is currently yielding 4.6 per cent, which is above average for the UK Equity Income sector.
The fund’s biggest overweight is pharmaceuticals, in which Nutt has a 16 per cent position. Glaxo and AstraZeneca are both top-10 holdings.
The manager’s biggest off-benchmark position in the top-10 is a 3.23 per cent exposure to Scottish & Southern Energy.