The manager's appointment followed the retirement of Anthony Nutt and a period of underperformance that means the fund still languishes in the fourth quartile over three and five years.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
He says there are four targets he has set himself to rejuvenate the portfolio and he is more than half-way through the process. The first target is to halve the coincidence between the portfolio and the FTSE All Share – or the coverage ratio.
"The higher the coverage ratio for an equity fund, the harder it is to outperform," he said. "For me, over time, coverage ratios have been around 20 per cent." "When I took over the ratio it was just over 40 per cent. It was down to around 30 per cent in August and my aim would be to take that down another 10 percentage points."
"The key reason is, as an active fund you have to do something different from the index if net of fees you’ve got any chance to outperform."
"Secondly, I want to increase the diversification of income. Quite rightly there are limits on the amounts of capital that can be concentrated in the top-five names in unit trusts, but that doesn’t apply to income, which can be contributed by the top-five names.”
Whitmore says that when he took over the fund, the biggest five holdings were contributing 42 per cent of the total income and that this had fallen to 30 per cent in August. He plans to take this down to 20 per cent in the future.
"What I’m really trying to do is get a diversified income source to provide a more resilient income over time," he said.
"The third one is clearly I need to adopt the investment philosophy I have had since I became a fund manager in 1997."
"Of the positions I inherited, 25 have been sold, all or in part. There’s a bit more to be done, also to contribute towards decreasing the coverage ratio and increasing the diversification of income."
"And then finally the income target. I don’t want to artificially keep it high – you might say robbing Peter to pay Paul – yet there are also quite clear targets of 110 per cent of the All Share over rolling three-year periods. And we’re on track to maintain that discipline."
Data from FE Analytics shows that the £2bn fund has made 18.67 per cent since Whitmore took control, marginally less than the 19.15 per cent of the average fund in the IMA UK Equity Income sector.
Performance of fund vs sector and index in 2013
Source: FE Analytics
The manager has brought a number of new names into the fund, including Aviva, Wolters Kluwer and Hewlett-Packard, each of which he says are turnaround stories in terms of business activity and investor perception.
He highlights Aviva in particular as a successful turnaround story.
"Aviva is good value," he said. "It had two poor management teams in terms of running the business and capital, but the new management has broken decisively with the past."
Whitmore says that he uses quantitative screens to try to take his personal opinion out of his judgements wherever possible.
"I believe my own emotions get in the way of a decent investment approach," he said.
The chief metrics he looks at are the cyclically adjusted price/earnings ratio and stocks with the best combination of high returns and low volatility – using the Greenblatt screen criteria.
"I’m not a top-down macro or company forecaster as I find it too difficult to do when you look at the evidence," he said.
"I’m trying to at least swing the pendulum around from subjective elements of investing to be more objective, so to look at objective screens."
He says he finds such quantitative metrics more reliable than company meetings.
"I am nervous about believing too much from investment meetings. You can have very strong confirmation biases – you tend to agree with what you say so I’m nervous about being too dogmatic about what I believe from those meetings."
However, the exception is when a new management team goes in.
"When you add new people to a situation, they tend to have a more balanced approach to the business, so they say I need to do this, this is bad, so I tend to do more meetings then than later."
The manager says he is less concerned with risk factors such as beta – a stock’s sensitivity to moves in the market – and tracking error.
He concerns himself with the risk of permanent loss of capital and the chance of dividend cuts.
The manager says that it is unrealistic to expect active managers to outperform in each calendar year, but that he has set himself the aim of doing so over rolling three-year periods.
"People can be seduced by performance numbers but it isn’t possible to outperform every year," he added.
Whitmore says the major challenge for equity investors at the moment is the lack of value in the market: the cyclically adjusted price/earnings ratio [CAPE] that he uses indicates that few stocks look cheap.
Valuations are key to long-term success in investing, he claims.
Whitmore also runs the £1.1bn Jupiter UK Special Situations fund, which has five FE Crowns.
The portfolio has produced top-quartile returns over five years, making 76.01 per cent.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Whitmore says that the income portfolio is inevitably starting to become more similar to the special situations fund, although the yield requirement on the former will ensure there are some significant differences.
Jupiter Income requires a minimum initial investment of £500 and has ongoing charges of 1.7 per cent.
