In 2013 the £4.8bn fund went off the boil, ending in the lowest quartile of its sector in stark contrast to its strong performance figures over 10 years. It was hit by an overexposure to emerging market debt and equities, leading it to return just 2.5 per cent to investors compared with 5.12 per cent from the sector.
“In the short-term it has not performed well but in the longer term it should perform much better based on its past performance and should make a good longer-term investment,” Wise said.
“If you’re currently holding the fund you should wait to see how this year’s performance is going to turn out. You’d need strong reasons to want to sell, and an equally strong rationale to buy another fund.”
Wise doesn’t even dismiss its potential in the short-term.
“They could see a pick-up in the short-term given their exposure to strategic bond funds (both domestic and global), although currency can affect performance, such as a continued appreciation of sterling,” he said.
“They’ve had good funds in their portfolio and strong managers, although the market has been against them over the past six months and that’s what can happen in the income space,” Wise said.
Jupiter Merlin Income has been a top performer over the longer term and its returns have been more stable than those of its peers, earning it a four crown-rating from FE.
Data from FE Analytics shows it has outperformed its benchmark over the past three, five and 10 years, returning 19.99, 57.78 and 103.74 per cent respectively.
Performance of fund vs sector over 10yrs
Source: FE Analytics
The fund of funds is managed by John Chatfeild-Roberts, Algy Smith-Maxwell and Peter Lawery.
All three are recognised as FE Alpha Managers thanks to their expertise in the fund-of-funds space, while Jupiter’s expertise in mixed asset investing has earned it “Outstanding” status in the FE Group Awards, says FE analyst Charles Younes.
“He and his team have become a fund-of-funds reference point in recent years,” he said.
“The fund has consistently beaten its Mixed Investment 20%-60% Shares sector over the last three and five years.”
“The main benefit of the fund-of-funds approach is that it diversifies the risk across different portfolios.”
“The team has become more cautious about the economic environment, particularly in Europe, and the fund should continue to outperform if policy-makers in the region fail to bring the current crisis under control.”
“The allocation to debt securities is less risky than it was before and outperformance in this area should mainly be generated through manager selection.”
“The equity performance is more likely to differ from its peers – it has a high allocation to UK equities and unusual and risky investments in emerging market companies.”
In a recent interview with FE Trustnet, Algy Smith-Maxwell said that Jupiter Merlin Income’s recent underperformance was due to its over exposure to emerging market debt and equities and the surprise robustness of the dollar.
According to data from FE, the fund has proved to be better than average at handling volatility and protecting investor capital.
Its maximum drawdown, which shows the effect of buying and selling at the worst times, is better than average and it has the third best Sharpe ratio over 10 years in its sector.
“Their two-pronged approach of looking to profit from long-term investment themes and selecting managers they believe can add value in their area of expertise has proved to be particularly effective,” Younes said.
“Like all managers at Jupiter, Chatfeild-Roberts and his team enjoy a great degree of freedom when investing.”
The fund is a relatively costly option, with ongoing charges of 2.36 per cent.
“One downside to the fund-of-funds approach is the additional layer of charges, and the cost of the fund is high compared with many other mixed-asset portfolios. However, the strong returns have more than made up for this,” Younes continued.
“The fund is best used as a single investment solution rather than as part of a portfolio and this further justifies the high charges.”
However, Chris Wise says investors shouldn’t hold more than 20 per cent of their portfolio in one fund, and that they should diversify even when holding a fund of funds.
Jupiter Merlin Income’s largest position is in M&G Global Dividend – 13.89 per cent of the portfolio – and Invesco Perpetual Income – 13.85 per cent – the latter challenged by the May departure of its star manager Neil Woodford.
Wise says that although future performance can’t be guaranteed, the funds in the portfolio give him confidence it can get back on track.
“Changing performance levels can happen quickly in today’s markets, and while you cannot predict this, given the range of funds it holds and the right environment, then the fund could improve its returns against the sector,” he said.
