Since its late-Eighties launch, Jupiter's UK Growth portfolio has experienced mixed fortunes. Kira Nickerson discovers how the fund has fared with Ian McVeigh in control
In the near two decades of its existence, the £1.3bn Jupiter UK Growth portfolio has had a varied history - with four distinct fund manag-ers: Leonard Licht, Edward Bonham Carter, Justin Seager and Ian McVeigh. Yet through the years it has remained a core investment fund, although its strong bias towards growth stocks at the beginning of this century and through the bear market years caused it to sit at the bottom of the performance tables for a number of years. Since then, and from when McVeigh took over the fund in 2003 from former Dresdner manager Seager, it has rebounded and is top quartile over one and three years as well as the three months to 23 April, according to Morningstar statistics.
The Jupiter UK Growth fund was launched in April 1988 under the management of Licht, passing over to Bonham Carter, now the group's chief executive and manager of its Undervalued Assets fund, when he joined the firm in 1994. With its manager having a reputation as a 'safe pair of hands', the fund became known for its value, core style, and performing well. Taking a lot of money, particularly through tax wrappers such as Peps and pensions, the fund hit more than a billion by the late 1990s, a rare milestone in the UK retail space at that time. Through the late 1990s when technology stocks soared, Bonham Carter's performance on the fund remained at the top, although at the peak of the tech run it was perhaps not reaching the heady highs of other more growth-oriented managers in the UK All Companies space.
The fund was moved to the management of Seager in 2000 just as the tech boom was starting to falter. Still a fan of the new paradigm story Seager moved the UK Growth fund to a more growth bias. The fund was not alone in struggling over the next few years as most in the UK All Companies sector suffered from market falls and the bear market.
In April 2003, at the start of the market recovery of that year, the fund was handed over to former Schroder Income manager McVeigh who had a more pragmatic style than Seager and was seen by investors in the fund to be a manager more similar in style to Bonham Carter, returning the fund to the core status it enjoyed in the 1990s.
The Growth fund, despite its name, should not be aligned with some of the more 'growth' styled portfolios in the UK All Companies sector, some of which over time could be confused with momentum. As McVeigh himself notes, the Growth fund name refers to its aim, to grow the capital, not a description of the style in which it is managed.
McVeigh is considered style agnostic and invests across a range of holdings including what could be termed growth, value and recovery plays. The current split is roughly 55% growth and 45% value with blue chips making up some two thirds of the portfolio, with one quarter in mid caps and the rest in smaller companies.
McVeigh defines growth stocks in terms of profit growth relative to the market average on a one-to three-year time horizon while value is viewed in terms of a price/earnings ratio discount to the market on the basis of 12 month forward earnings. He considers potential recovery plays as companies which may be expensive on current valuation parameters but where he can see the potential for substantially higher profits on a medium-term time horizon.
Change is one of the key catalysts that he looks for in each category and this can often be provided by new management, industry-specific changes or macro themes. He can then monitor each position against his initial expectations, to determine whether the reason for purchase is still in place.
In his stock selection McVeigh makes regular use of stock screening and valuation tools that use cashflow analysis to help in the stock selection process, particularly with undervalued growth opportunities. His sell discipline consists of setting individual price targets for each holding. McVeigh says while he likes to hold companies for at least two years, he eyes changes in price not time when reviewing stock positions.
In constructing the portfolio McVeigh believes in having conviction positions in stocks, preferring not to hold anything smaller than 1%. His largest position in the fund at 7.26% was copper mining firm Xtrata as of the end of February and the combined top 10 holdings at that time accounted for just over 40%.
Prepared to have zero weighting, even in some of the largest stocks in the index, this will inevitably lead to periods of higher volatility than the index but McVeigh says: "I think you have to be prepared to have meaningful holdings in a fund, not to be a closest tracker." The fund tends to have a tracking error of 6%, he adds.
McVeigh does not dismiss the impact macro issues can have but he does not use it in constructing portfolio ideas, believing it to be a blunt instrument which at times can be misleading. He points out that in 2005 he had a cautious view of the consumer and housing market and as such, he says, he was slow to pick up on the fact that Marks & Spencer was undergoing some dynamic changes. McVeigh adds he currently owns the UK retailer.
Instead he aims to get stock ideas from his knowledge and contacts he has built during his 27 years working in this industry. In examining stocks he leans towards firms that are starting to show unrecognised and as yet unrealised change. He says: "I like a company that is perceived to be dull. Where you can see change starting but the valuation is not yet reflecting this."
In looking at the markets today, McVeigh comments his larger company weighting in the fund is currently at 70% with the remainder split between mid and small caps. When examining the mega cap end of the market, McVeigh comments there does appear to be good value to be found, however he cautions it could simply be a valuation trap. "It is worth bearing in mind that mega caps have delivered consistent disappointments. They may look cheap but they could just be value traps," he says. He cites banks as an example, noting that on P/Es of nine to 10 times they look good value, except they keep suffering steady downgrades and profit warnings.
McVeigh believes the investment climate today is a classic stock pickers market, following a compression of value and growth trends, as well as seeing little difference in the market caps, leading managers to simply seek out the best in each sub-set. He adds: "There is not a single part of the market or theme within it that is stand out at the moment. It could be mega caps because they are cheap but are they good value?"
On top of the billion-pound retail portfolio, McVeigh, who when he left Schroders ran the Parkway Capital hedge fund, also manages institutional funds and the Jupiter Ganymede long-short hedge fund n
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