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Why James Clunie’s short book is growing by the day

30 September 2014

The Jupiter Absolute Return fund’s net long exposure has fallen to 21 per cent and could decrease even further, says manager James Clunie.

By Gary Jackson,

News Editor, FE Trustnet

James Clunie (pictured) has been consistently adding to the short book of his £255.5m Jupiter Absolute Return fund recently and says he has not ruled out taking the portfolio to a net short if the right opportunities present themselves.

ALT_TAG The manager took over the fund in September last year following the retirement of Philip Gibbs.

Before joining Jupiter, Clunie achieved strong results as lead manager of the SWIP UK Flexible Strategy and made a name for himself through his short-selling abilities.

Jupiter Absolute Return aims for absolute returns over rolling three-year periods and invests globally across a range of assets with long and short exposure.

Clunie currently has about 26 per cent of the fund invested in his short book, spread across 63 positions in the UK, the US, Europe and Asia.

Last month, the fund had 53 short positions. In contrast, there are just 55 long stock positions in the portfolio - although these account for around 47 per cent of assets.

There were 59 longs in the portfolio during August, the latest fact sheet shows.

Fund’s asset allocation


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Source: Jupiter

“I actually now have more short positions than long positions in the fund,” the manager said.

“I can find plenty of stocks that appear to be over-priced and where there are negative catalysts, or reasons to be short now. Generally speaking they have been small positions in my fund but in the last month I have increased the number of shorts and the size of those shorts.”

He adds that the fund’s short positions are “increasing every day at the moment” with many of these opportunities being found in the US.

“The reason for that is the US appears to be one of the markets with the weakest medium-term outlook for equity price returns, if only because the current valuations are rather high,” he explained.

“In fact some buy-side strategists are arguing that US share prices could fall on average on each of the next five to 10 years. That would be rather interesting and it means there is fertile hunting ground for over-priced assets.”

One of the catalysts for increasing the fund’s net short of US equities to a “meaningful” 8 per cent is the strength in the dollar. A weaker dollar had aided the earnings of many US companies but these are now being hindered by a stronger greenback.


“That should provide a catalyst for some earnings downgrades. Now what we have is a highly rated stock market with a number of firms which are likely to face imminent earnings downgrades and that reminds me of some of the stocks in Diageo or Intertek that I’ve been short of in the UK and Europe in the last year.”

Jupiter Absolute Return’s shorts are placed into four categories.

The first includes “good firm and bad stock” ideas such as drinks manufacturer Diageo and Portuguese supermarket Jeronimo Martins.

Clunie recently explained on FE Trustnet his reasons for shorting quality companies.

The manager also likes to short stocks with decelerating revenue growth and large debt burdens, with examples including cash & carry firm Eurocash Group and consumer packaging company Rexam, and businesses hit by earnings downgrades with “rather aggressive” accounting.

Examples here are watch maker Swatch and engineering business Meggitt.

The fourth type of short is the rarest; opportunities that Clunie regards as a “bad firm and bad stock”.

He places US firm Post Foods in this bucket, arguing that it has grown rapidly through acquisition, has lots of debt and recently issued a profit warning.

Since Clunie took over the portfolio at the start of September 2013, the fund has returned 1.81 per cent.

This is above the 0.58 per cent rise in its three-month Libor GBP benchmark but below the 4.36 per cent average return in the IMA Targeted Absolute Return sector, according to FE Analytics.

As a point of comparison, the FTSE All Share has gained 7.61 per cent over this time.

Performance of fund vs sector and indices since manager start

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Source: FE Analytics

He said: “The good news from my standpoint is if I regard short selling as my areas of best knowledge and experience, then if more of the portfolio is dedicated to shorts because it’s the right time to short then I have a better chance of adding value for clients.”

“One of the things that has been challenging over the last year is that shorting has been so difficult. But the catalysts now seem to be coming in the form of imminent downgrades and that means that now is good time to take exposure to the stocks I feel are over-priced.”

Jupiter Absolute Return’s net long position is currently just 21 per cent. This is down from about 30 per cent last month and is the lowest weighting since Clunie took over the fund last year.

The fund is able to go net short, which Clunie has thought “long and hard” about.

He says he would be willing to make this move, but this would be based on finding enough single stock opportunities rather than a view that the market is about to crash.


“It would be a little bit frightening if markets went up – which they tend to do in the long term. But obviously you’d be net short because you found so many good ideas of over-priced assets with catalysts for them to go down,” he said.

“If I organically find many over-priced stocks with negative catalysts and I’m confident then the fund could go net short. If the market fell during that regime, it would be a wonderful situation for clients because they’d have a fund that goes up as the market fall.”

“I’ve never been net short before in five years of doing this. That’s appropriate because markets have drifted up over the last five years, so it’s something that’s rarely done and has not been appropriate in recent years – but who knows from here?”

Jupiter Absolute Return has clean ongoing charges of 0.86 per cent.

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