Three years on from his move to Jupiter Asset Management, James Clunie has turned around the performance of the Jupiter Absolute Return fund and become one of the favourite manager in the sector for some investors. 
The £572m fund, formerly run by Philip Gibbs, had been a relative disappointment before Clunie (pictured) took over, returning 1.71 per cent to investors since launch – a period of some three years.
While this was ahead of the benchmark’s 1.45 per cent gain, it was below the IA Targeted Absolute Return sector’s 7.04 per cent, though this is a difficult sector in which to compare members.
However, since Clunie took over in September 2013, the fund has outperformed, as the below graph shows.
Performance of fund vs sector and benchmark since manager started
Source: FE Analytics
Over the last three years, Clunie has returned 18.79 per cent to investors, double the sector average, though it has also been more volatile in that time.
Clunie has been vocal in how he makes full use of the long/short nature of the fund, arguing that this offers him an “edge” – something he says an active fund manager must have in order to justify their existence.
“If you’re an active manager you really have to ask yourself ‘why do I deserve to exist?’” he said.
“If you’re an active manager you have to try to develop and maintain some sort of edge some kind of reason why you might win in markets, why you might beat an index fund after fees and that means you have to have some kind of process or ability that beats the others.
“For the three years since we started we have made absolute profit short selling stocks despite the fact that it’s a bull market. If we can do that in a bull market I think it all bodes well for a bear market.”
The Advisors Centre’s Gill Hutchison says short selling has not been fruitful for long/short managers for some time thanks to the slowly rising nature of markets.
However, the fact Clunie has made a moderate return from the short book “has made a meaningful difference to the fund's outcome compared to other long/short funds”.
Currently, Clunie has around 70 per cent of his portfolio in long positions, with 40 per cent in short positions predominantly in the financials, industrials and consumer sectors.
Rob Morgan, pensions and investment analyst at Charles Stanley Direct, added: “That his shorts have broken even is pretty impressive given that the global equity market is up around 30 per cent over this time and the S&P 500 Index, a key market for the short positions, is up 40 per cent.
“Many long-only managers have tried their hand at long/short absolute return funds but have ultimately failed because they lack the mind set to short. It requires a certain blend of conviction and pragmatism – and a dogmatic attitude can be disastrous.”
He says the fund is “one of my favoured funds in a sector that, on the whole, I’m not that keen on”.
“I like the fact the fund is global as it widens the opportunity set – a number of long/short funds concentrate on specific markets and are often reliant on the manager consistently finding alpha on entirely bottom-up basis.”
He adds that the fund offers “genuine diversification” to investors, not only through its short selling positions but also through its holding of other assets as a means of hedging.
For example, the top holdings in the fund include short duration government bonds, as well as gold ETFs and positions in unloved companies such as BP and Centrica.
Sector weighting of the Jupiter Absolute Return fund
Source: FE Analytics
However, like any fund of this nature, given that it is not market-directional, performance will be idiosyncratic.
Gill Hutchison added: “Jupiter's own analysis tells us that its outcome is behaviourally differentiated from other funds and so it should make for a diversifying addition to a portfolio of funds.”
Performance of indices in 2016
Source: FE Analytics
“Looking at it over the very testing past year, it has survived negative markets relatively well,” she added.
Indeed, so far in 2016, the fund has returned 10.59 per cent to investors with less volatility than the market.
“Nonetheless, like many other managers, James notes that the current market conditions are exceptionally challenging because of the distortions created by monetary policies,” Hutchison added.
“For investors, it's really a case of understanding how much outright risk you are prepared to tolerate.”
“In the case of James' fund, he suggests that a return of 5-6 per cent per annum (with a three-year time horizon) is achievable but that drawdowns of 4 per cent should be expected along the way. Some investors are relaxed about that, others find it unpalatable.”
Jupiter Absolute Return has a clean ongoing charges figure of 0.87 per cent.