Long-term track record of group's UK Growth fund dented by shift from value to growth
The AA-rated Jupiter UK Growth fund has seen both it's one-year and long-term track records seriously dented by a style switch from value to growth.
Despite this, manager Justin Seager, who took the reins of the £628m fund back in January 2001, replacing Edward Bonham Carter, is maintaining his high mid-cap weighting and growth tilt in expectation the UK market will return to more of a growth bias.
Seager admits a value approach, as adopted by Bonham Carter, would have been preferable over the past year and a half but said his style, which he was known for when he arrived from Dresdner RCM Global Investors, is to seek out undervalued growth stocks with strong management and a competitive edge.
Over the 12 months to 19 April, Jupiter UK Growth posted growth of -15.28%, bid to bid, compared to a sector average of -7.83%. It slipped into the fourth quartile, ranked 276 out of 295 funds.
This underperformance has led to the fund's three-year track record slipping into negative territory, with a return of -1.79%, and its five-year numbers dropping into the second quartile. Over 10 years, the fund still looks impressive, with a return of 344.47% against a 189.08% sector average, keeping it in the top decile.
Seager's underperformance follows a period in which Bonham Carter's value style has been in favour with the market. Over the 12 month period between 19 April 2000 and 19 April 2001, the fund posted growth of 11.12% versus a 1.77% average fall. However, Bonham Carter's style was tested over the previous 12-month period, 19 April 1999 to 19 April 2000, underperforming as the technology bubble drove peer group growth up to an average of 16.51%, while Jupiter UK Growth delivered just 6.8%.
Seager admitted that, regardless of style issues, the fund's underperformance over the past 12 months largely stems from market timing.
An early move into growth stocks over summer 2001, in anticipation of economic recovery on the back of the Federal Reserve and Bank of England's aggressive rate cutting policy, backfired and led to some hefty losses.
Seager said: 'The first half of 2001 was fine but what we started to do coming up to the middle part of last year was to move toward more forward-looking growth stocks and out of defensives.
'The third quarter was poor for us. The move into cyclicals was not enough. Defensives and cyclicals were needed over the past few months and we have not had enough of either.'
Seager said he made a number of significant bets over the past three quarters but the net result has been some painful losses.
He noted: 'We were overweight leisure, which was part of our problem in the third quarter, although fortunately we held on and made some of it back. Another significant negative was being light on banks because we were worried about bad debt issues, which was quite uncomfortable. Retailers have also done extremely well because the UK consumer has been strong and we largely missed out on that.'
The fund's overweighting of construction and housebuilding and defence stocks has been positive, Seager said, as has his positive bets on engineering and transport companies and underweighting of telecoms.
Despite the discomfort endured in the aftermath of 11 September, the fund largely maintained its sector weightings and Seager has traded little over the past few months due to the expense and lack of liquidity.
He remains confident his sector positioning will bear fruit over the coming months and believes the fund's overweighting of mid-cap stocks could turn around the lacklustre performance over the past 12 months.
Looking forward, Seager said that although equities remains fairly expensive, he is expecting the UK market to turn around, barring any unforeseen macro shock.
He predicts the FTSE could rise by 100-200 points by year end.
Industry Voice: Scottish Widows pension expert Robert Cochran and economist Andrew Scott discuss the future of employment and income, in episode three of Scottish Widows' podcast series.
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