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Should investors sell Jupiter European after three years of underperformance?

08 September 2022

The fund was a top quartile performer under former manager Alexander Darwall, but returns have sunk below the sector average since Mark Heslop and Mark Nichols took over three years ago.

By Tom Aylott,

Reporter, Trustnet

The popular Jupiter European fund rose to prominence in the early part of the 2010s as it blossomed under the management of Alexander Darwall, but performance has wilted since.

Indeed, over the past decade the fund has made 194%, while over five years it remains in the top quartile of the IA Europe Excluding UK sector.

However, the fund has dropped to the bottom quartile since FE fundinfo Alpha managers, Mark Heslop and Mark Nichols, took over in 2019.

Returns are 4.5 percentage points lower than its peers since the leadership change, at 6.3% over the period. It remains popular among investors, but some have started to leave. Indeed, since October 2019, the fund’s assets under management have dropped from £4.9bn to £3.3bn.

As the fund approaches its three-year anniversary with Heslop and Nichols as managers, Trustnet asks industry experts if investors should buy, hold or fold Jupiter European.

Total return of fund vs sector since manager change

Source: FE Analytics

Ben Yearsley, investment director at Shore Financial Planning, said that he would sell the fund if he was currently invested in it as the investment styles of its previous and new managers differ too greatly and have left the strategy weaker.

“They took the fund over from a manager with a distinct style and it was never going to be a copycat fund,” he said.

“The current team are quality-growth focused whereas previous manager, Alexander Darwall, is more growth focused. I suppose the key problem is it’s neither one thing nor the other.

“Jupiter seems an unhappy place and I wouldn't hold any Jupiter funds currently. They've been unlucky with style tilts in markets but overall I prefer other funds”

Andy Merricks, fund manager at 8AM Global, also noted that the shift between managers was a difficult transition, which created higher exposures to sectors that could underperform in this market cycle.

He said: “One of its main problems is that it had grown to a massive size which, with its’ exposure to mid-caps, made it a very hard fund through which to alter course if need be.”

Around 44.8% of its largest sector exposures are to consumer discretionary and industrial assets, which are “probably the last place to be sitting in an energy-driven, inflationary cost-of-living crisis,” said Merricks.

He advised investors to hold the fund if they already owned it, but an appealing entry point for new buyers won’t open up until at least the second half of next year.

Tom Sparke, investment director at GDIM, was more sympathetic about the challenging conditions that Heslop and Nichols inherited the portfolio in.

Shortly after taking over the fund, markets were struck by the pandemic and all the monetary hurdles that came with it.

All things considered, the new managers handled this tough period quite well, according to Sparke, who said: “The fund has actually performed better than similarly positioned peers.  As the holdings are more internationally focused the fund should suffer less in a European recession, especially as many of the holdings have high pricing power and robust balance sheets.”

He added that investors who are concerned by Jupiter European’s underperformance over recent years should not jump ship as its current holdings appear resilient to upcoming market volatility.

“I think that the inordinate value-bias that has led much of the gains this year has dissipated, so the fund should do better as it holds very good businesses that have positive futures ahead,” Sparke said.

Chris Salih, research analyst at FundCalibre, was equally positive about Heslop and Nichols’ direction throughout the turbulent three years of their management and was confident that the portfolio’s allocations have improved over that time.

He said: “Ultimately both Mark Nichols and Mark Heslop have excellent long-term track records investing in Europe and, importantly, have stuck to their process despite these headwinds.

“They now have a portfolio consisting of industry leading companies offering protection should we enter recession, but also the strength to thrive as and when we see a recovery.”

Investors who already hold the fund should keep it within their portfolios, but the current market uncertainty and depressed values may make now an opportune moment to buy, according to Salih.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.