Sillars, a fund selection specialist for the top-performing Jupiter Merlin range, says that in contrast to the world’s unhealthy sovereigns, private households have started paying off debt and the corporate world has ‘taken its capitalist medicine’.
“UK corporates have fantastic balance sheets and low leverage, and the average UK consumer has even started paying off his mortgage, something I never would have thought would happen,” she said.
Investor should look to equity and corporate bond funds rather than portfolios that manage sovereign debt if they want to take advantage of this unbalanced dynamic, she explains.
“Look to corporates,” she said. “You can buy the debt at 4, 5 or 6 per cent coupon, which is very attractive, or you can buy the equity.”
“We also like strategic bonds as an asset class. Good quality managers in that sector can give you a decent performance. We own the Jupiter Strategic Bond fund for example.”
All four Jupiter Merlin multimanager funds are top quartile performers in their respective sectors over five years, and those with a ten-year history are top quartile over that time-frame as well.
In addition, only Jupiter Merlin Worldwide failed to record top-quartile gains over three and one-year periods, falling to the second quartile of the IMA Global sector.
Performance of funds vs sectors and quartile (Q) ranking
| 3yrs (%) | Q | 5yrs (%) | Q | 10yrs (%) | Q | |
| Jupiter Merlin Growth | 38.28 | 1 | 14.93 | 1 | 131.26 | 1 |
| IMA Flexible Investment | 29.56 | - | -1.27 | - | 61.68 | - |
| Jupiter Merlin Balanced | 35.43 | 1 | 13.75 | 1 | N/A | N/A |
| IMA Mixed Investment 40-85% | 29.46 | - | 2.12 | - | 60.77 | - |
| Jupiter Merlin Income | 36.9 | 1 | 21.33 | 1 | 99.65 | 1 |
| IMA Mixed Investment 20-60% | 24.63 | - | 5.53 | - | 48.91 | - |
| Jupiter Merlin Worldwide | 36.26 | 2 | 14.1 | 1 | 114.17 | 1 |
| IMA Global | 33.39 | - | 1.24 | - | 57.42 | - |
Source: FE Analytics
Jupiter Merlin Income is arguably the strongest of the four; according to FE data, the £3.49bn has beaten its sector average in each of the last twelve calendar years.
The funds are team-managed, with FE Alpha Manager John Chatfeild-Roberts heading up the group, which also includes Peter Lawery and Algy Smith-Maxwell – also FE Alpha Managers.
Though she believes the real value is in the corporate sector, the Jupiter Merlin team has a bearish outlook on the immediate economic future, which it believes will be dominated by the developed world struggling under a mountain of debt.
She commented: “Since the US came off the gold standard, its GDP has gone up ten times but in the same time leverage has one up 30 times and has given us an illusion of prosperity and growth.”
“Total debt in the UK, including household and corporate debt, is currently around five times GDP, or £125,000 per person.”
“The government wants to keep interest rates down, because of this debt, so clients will find their will lose its value in cash; interest rates will remain pitiful in the near future.”
Sillars was scathing about government policy in the UK, where quantitative easing has been employed to inflate away the debt and banks have been bailed out.
“Since the crisis we have seen $16trn added to central banks’ balance sheets, but if printing money worked Zimbabwe would be the richest country on earth.”
“Meanwhile, what’s the moral obligation for banks to behave in a reasonable way if they have been bailed out?”
Europe is in a worse position, however, Sillars believes.
“Eurozone financials are three times more leveraged than the US. Whereas US banks were forced to recapitalise, European banks were not,” she said.
“We think the European banking sector is the Achilles Heel of the whole system; it’s probably France that is the most exposed.”
“Eventually there will be the buying opportunity of a generation but we are not there yet; markets have further to fall,” she finished.