The Jupiter Hedge fund, set up in early 1997, is run by fund manager Alan Miller and concentrates al...
The Jupiter Hedge fund, set up in early 1997, is run by fund manager Alan Miller and concentrates almost entirely on long/short investing in the UK market.
Miller's focus on stockpicking allows him to balance long and short positions, mitigating market risk and concentrating on absolute returns from stock selection.
He said: "The strategy is to find high quality, undervalued companies with a good earnings and cashflow outlook, where the valuation has significant upside potential.
"Over the three years of the fund's existence the net investment exposure has never been more than 50% net invested, with a typical net long position of between 25% and 30%. Whenever I buy a stock I match the new position with futures the other way or by shorting another stock in an attempt to take out the market risk."
The focus is on companies that operate in markets where there is exceptional growth potential due to natural demand and which have a dominant position in their particular area.
"An example of a stock we are keen on is Biocompatibles which makes the only contact lens with a Food & Drug Administration label, giving it a considerable advantage over its competitors, together with a medical stent which could gain substantial market share via a significant and fast-growing market."
Miller's bias towards small and medium-sized companies means he generally holds a net long position.
He remarked: "I focus on the small to mid cap area in the belief that it is relatively under-researched and there are more interesting ideas available there. This means it is important to have more long positions, because when the market rises it is usually taken upward by the big stocks."
On a sectoral basis, the fund tends not to have large over or underweightings.
Miller said: "My largest sector overweighting is in healthcare, which is presently 10% of the fund. This is on the basis of two company holdings. The largest net short in a sector is restaurants where we are short one of the major restaurant chains."
Another sector that has a net short allocation is software and computers.
"We are around 5% net short here. This has been costly for us in late 1999 and early 2000, but I believe there are a number of stocks in this area that are wildly overvalued. The valuations of many of these stocks cannot be justified under any conventional valuation mechanism and the new methods of valuation being promoted by analysts are complete rubbish.
"I have made money from some long positions on interesting smaller stocks in this sector, with the short exposure being concentrated on a number of the larger stocks that have been the subject of blind momentum buying."
As at the end of December 1999 the top five stocks in the portfolio were Cable & Wireless at 9.75%, Royal & SunAlliance at 5.88%, Elan Corp at 5.71%, Cable & Wire Comms at 5.33% and Biocompatibles at 5.28%.
As at 30 December 1999 the total net assets of the fund were just under £63m.
The fund was up 40% in calendar year 1999, 34.62% in 1998 and 56% in 1997. The single best month over this three-year period was March 1998, when the fund was up 13.64% on the previous month.
The largest single drawdown month over the period was August 1998 when the fund was down -8.37% on the previous month, although October 1998 showed a net gain of 13.04%.
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