The £355m Jupiter European Opportunities trust and £2.2bn Jupiter European fund are both bottom-quartile performers over the past 12 months, a surprising development after years of strong returns. The European fund is top-quartile over three and five years, having returned 174.68 per cent to the sector’s 107.37 per cent, while the record of the closed-ended fund is even better.
Jupiter European Opportunities has returned a massive 301.38 per cent in share price terms over this time against the 152.47 per cent of the sector. In NAV terms, the trust has made 262.5 per cent.
Performance of trust and fund vs sectors over 5yrs
Source: FE Analytics
Over the past year, however, both lie in the bottom quartile of their respective sectors.
Jupiter European has made just 25.46 per cent to the IMA Europe ex UK sector’s 32.09 per cent, while Jupiter European Opportunities has returned 27.03 per cent to the IT Europe’s 39.97 per cent in share price terms.
Jupiter European has also underperformed its benchmark, the FTSE World Europe ex UK, which has made 26.85 per cent.
Performance of fund vs sector and benchmark over 1yr
Source: FE Analytics
It’s a similar story with the closed-ended fund, which has lagged its benchmark in share price and NAV terms over the year.
Performance of trust vs sector and index over 1yr
Source: FE Analytics
One of the factors on the closed-ended fund is the discount activity. Jupiter European has been on an average premium of 1.5 per cent over the past year, while some of the other trusts in its sector have seen their discounts narrow, pushing up their share price gains.
However, the trust has also struggled in NAV terms. Our data shows NAV has risen 26.4 per cent, the lowest of the eight European investment trusts.
The European Investment Trust's NAV has grown by 39.3 per cent while JP Morgan European Income has seen gains of 39.2 per cent.
Simon Elliott, head of research at Winterflood, says that even if the trust looks poor against its peers, the NAV performance isn’t disastrous.
Its quiet year is largely down to problems in some of its largest holdings, he says. Jupiter European Opportunities has 57.38 per cent in its top-10, making it extremely concentrated and more susceptible to any problems in these companies.
"It’s just a stock-specific story," he said. "It’s a very concentrated portfolio Darwall has put together and he tends to stick to his companies, and it’s one where companies in his portfolio have had a quiet year. As a concentrated fund, it won’t perform in line with the index."
Chemicals company Croda is one top-10 holding that has had a weak period. Weakness in its important markets of India and Japan led to earnings downgrades earlier this month which hit the share price hard, pushing it down 4.8 per cent in a day.
Other UK holdings Intertek and Experian have also failed to keep up with the FTSE in the latter part of the year, having outperformed strongly in the previous two years.
Performance of stocks vs index over 1yr
Source: FE Analytics
Intertek reported a fall in profit margins in three of its five divisions in July, blaming weakness in the commodities markets.
Apart from stock-specific issues, Hargreaves Lansdown’s Richard Troue says that Darwall’s focus on quality companies means that he can underperform in market rallies where lower-quality companies are dragged up from lower valuations.
It is certainly the case that many of Darwall’s companies have been highly rated in tough markets and the manager has continued to hold these companies he considers to be high quality even as they become expensive.
Croda, Intertek and Experian, which make up 16.81 per cent of Darwall’s closed-ended portfolio, are trading on P/E ratios significantly ahead of the market. Croda is on 20 times, despite the earnings warning, while Intertek is on 30 times and Experian 33.
It is a similar story on the Jupiter European fund, where Darwall’s top holdings are trading on or above 20 times earnings. Wirecard, the top holding at 6.52 per cent of the fund, is trading on 39.34 times earnings. The FTSE All Share is trading on 15 times earnings, for comparison.
Another issue is clearly the weakness in some of the markets of some of his top holdings, linked to the slowdown in commodities and emerging markets.
However, Troue, like Elliott, says he is unconcerned by this short-term underperformance.
Darwall’s buy-and-hold style means that he looks beyond the short-term to judge what the prospects are for his businesses in the long-run, the analyst says.
This means he is unlikely to be concerned by a year of poor results for his companies if he believes the long-term story remains intact.
"He absolutely hates talking about the short-term," Troue said. "He is looking at the prospects for his individual companies over the longer term."
Troue adds that now, just after a relatively weak period of performance, could be a good time to consider buying in to the funds.