Jupiter Merlin Portfolios. January 2016 PROFILE. Experienced. Professional. Trusted.

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1 PROFILE Jupiter Merlin Portfolios January 2016 Experienced. Professional. Trusted.

2 Contents About Us...3 Working with advisers... 3 Working with providers... 3 Ratings... 3 Executive Summary...4 Multi-Asset Investing...5 Company Background & Philosophy...6 Jupiter Merlin Portfolios Concept & Overview...7 The Funds... 7 Charges... 7 The Management Team...8 The Fund Management Process...10 Asset Allocation...10 Manager / Fund Selection Process...10 Portfolio Construction...10 Monitoring...10 Risk Management and Monitoring...11 RSMR Comments...12 Performance...13 Cummulative Performance...13 Discrete Performance...13 Volatility...14 Maximum Loss...14 Beta...14 Current Asset Allocation...15 The Portfolios...17 Jupiter Merlin Conservative Portfolio...17 Jupiter Merlin Income Portfolio...18 Jupiter Merlin Balanced Portfolio...19 Jupiter Merlin Growth Portfolio...20 Jupiter Merlin Worldwide Portfolio...21 Conclusion...22 page 2

3 About Us Established in 2004 RSMR provides research and analysis to firms working across the UK s personal financial services marketplace. Our work is completed with total impartiality and without any conflict of interest and delivered to a high professional standard by a team of experienced and highly qualified people. Working with advisers We provide specialist research, analysis and support to a diverse range of financial advisers and planners helping them to deliver sound advice to their clients backed by rigorous and structured research and due diligence. The main regulatory body in the UK, the FCA, states that personal recommendations made by advisers should be based on a comprehensive and fair analysis of the relevant market and this has led to closer scrutiny of the whole advice process. Our solutions are designed to help advisers meet these challenges whilst recognising that advisory firms require a range of flexible options that best meet their own business needs and those of their clients. Working with providers We work with all the leading fund groups, life and pension companies and platform operators across the financial services sector offering straight forward and pragmatic advice to help add value and improve their business performance and efficiency whilst treating customers fairly in line with FCA requirements. Ratings Our innovative range of ratings are now recognised as market leading and cover a broad area of investment solutions including single strategy funds, SRI funds, Multimanager and multi-asset funds, and investment trusts. Our familiar R logo is now recognised as a trusted badge of quality by advisers and providers alike and a must-have when selecting funds. Our ratings are founded on a strict methodology that considers performance and risk measures but places a greater emphasis on the ability of fund managers to continue to deliver performance in the years ahead based on our indepth face-to-face meetings with fund managers across the globe. We understand financial services and we will work alongside you to deliver tailored solutions that are right for your clients and your business. We are: Experienced. Professional. Trusted. The data and information in this document does not constitute advice or recommendation. We do not warrant that any data collected by us, or supplied by any third party is wholly accurate or complete and we will not be liable for any actions taken on the basis of the content or for any errors or omissions in the content supplied. All opinions included in this document and/or associated documents constitute our judgement as at the date indicated and may be changed at any time without notice and do not establish suitability in any individual regard. RSMR All rights reserved. page 3

4 Executive Summary l The Jupiter Independent Funds Team (JIFT) are a longstanding and experienced group, the core of which have worked together for over ten years. They know each other well and form a cohesive team resulting in strong working relationships and a mutual trust in each other s areas of expertise. l Having worked through a number of economic cycles the team has the experience to give them confidence in taking a longer term view. Macro and fund views are made with this in mind, and changes are made as a result of considered opinion rather than knee jerk reaction. l The portfolio managers recognise that they need to match the goals of their investors so capital preservation is the backbone of their approach with a bias to quality, value and transparency. They aim to keep the investments simple to understand and liquid. l The research process is macro led which provides a strong framework in which to maintain and monitor the portfolios. The portfolios are tactically rebalanced to address the changing short term macro environment. l Whilst statistical data is used to support decisions, the team rely more on qualitative analysis for both macro research and fund selection. l Funds are selected based on Jupiter s belief in the managers ability to deliver to their objective and therefore fulfil their role within the relevant portfolio. Funds are selected with a high conviction approach for each portfolio. l Fund selection is undertaken with a view to retaining holdings longer term, whilst aiming to combine different fund attributes to avoid style bias. l The resource of JIFT was strengthened in 2015 with the return of John Chatfeild-Roberts to running the portfolio strategy. l Performance has been strong in both relative and absolute terms over most time periods considered. They recognise that having longer term and sometimes contrarian views will lead to some short periods of underperformance. l The Jupiter Merlin Portfolios have been rated by RSMR since the launch of our rated fund service in RSMR January 2016 page 4

5 Multi-Asset Investing The recent environment for the provision of financial advice has delivered a number of changes which have changed the way many advisers operate. The implementation of the RDR has been at the heart of this change but other subsequent reviews into the selection of investment solutions and the requirement to understand different types of client risk have all contributed to the current regime. Indeed we have seen a move of many advisers to outsource investment solutions to multi-asset portfolios relying on the fund manager to maintain the portfolio rather than the adviser. The rise of targeted investing with either risk or return targets being used to manage investments has also been a feature of recent product offerings in the UK and has resulted in a number of new solutions which have strict investment parameters. Overall the market for this type of solution has widened and with the new pension freedom regulations adding flexibility to an investors retirement choices the need for such solutions can only grow further. Looking at the investment background for multi asset investing the last ten years have been mixed. Although figures will show that equities have outperformed government bond markets over this period, it has certainly not been straight-forward or predictable with 2008 and 2011 prime examples of this. The table below is a simple illustration of these fluctuations: UK Gilts UK Equities Source: Financial Express Analytics, 3rd November 2015 This background has made it very difficult for most investors, professional or otherwise, and requires a significant amount of patience and skill to seek out those areas that can offer some return in an ever rotating economic environment. Managed investment solutions are one way of helping to take away some of the stress of selecting assets in this environment, allowing the adviser to focus on the many other areas of financial planning whilst the assets are managed on their behalf. It can be argued that these funds can be seen as simple solutions to most investment selection and monitoring issues and they are clearly a popular choice. The challenge is that, whilst it always seems advantageous to have more choice, selecting the right option from an ever increasing list is increasingly difficult and taking account of the increasing number of complex investment instruments that can be used to form portfolios, the apparently simple solutions can become all the more complex. The changing regulatory environment is also adding to the difficulty in building an appropriate solution that takes a client from risk assessment through to investment solution. The advisory market has an equally expanding range of choices to take an investor through this process and guidance is needed to bring all the elements together to form an acceptable solution. To try and simplify the choices but provide enough options to cover most investors requirements is a difficult task. This review looks in detail at the Jupiter Merlin Portfolios for investors, which we believe can go a long way to helping overcome many of these issues and difficulties. In the FCA Guidance papers on Assessing Suitability the regulator emphasised the need for advisers to have sufficient understanding of the features and risks of the investment they select for clients. We believe a thorough understanding of all aspects of an investment solution will ensure the adviser is best placed to achieve the most appropriate outcomes for their clients. page 5

6 Company Background & Philosophy Jupiter was established in 1985, obtaining a listing on the London Stock Exchange in After various acquisitions, Jupiter s senior management completed a Management Buyout in 2007 supported by a private equity firm, and Jupiter Fund Management plc was listed on the London Stock Exchange in As at 3rd November 2015, Jupiter managed a total of 33.5 billion, and was the sixth largest fund manager of UK retail mutual funds by assets under management. Jupiter s investment philosophy is to generate investment outperformance over various measures without exposing its clients to unnecessary risk. They believe that talented fund managers perform best if they are given the freedom to invest as they deem appropriate within the constraints of the investment objective. The managers work as a close knit team, sharing ideas and debating economic prospects, but each has individual responsibility for their portfolio and is accountable for the fund performance. They are also closely monitored by the independent risk monitoring function. The Jupiter philosophy is not one of house views, committees and core stock lists, as they feel this consensus approach leads to compromise which may deliver average performance. Instead they take an active approach, allowing the managers considerable scope for contrarian positions, focussing on stock selection rather than targeting geographic or sector allocations. Jupiter also encourages managers to invest personally in the funds they and their colleagues manage, thereby aligning their interest with those of their clients. RSMR Comments The structure of Jupiter has gone through a number of transitions until its present form where it is now a shareholder owned business, and all of the current management are still shareholders. This is a great positive from our perspective with the company continuing to engage its managers in maintaining results as the success of the company as a whole provides for their financial security. The group is not focused on employing large banks of analysts to filter through data for managers. They prefer to rely on the skills of the managers within a close knit team to deliver the investment decisions. They take external data and sell side information into account but prefer to have a smaller number of decision makers through the investment process. In the multimanager team, the approach has always been focused on making macro decisions first before selecting the underlying holdings. They place a strong emphasis on getting the fund selections right but only after the macro decisions have been made. The team have their areas of expertise but combine to make the macro decisions so that all members have the ability to input. Jupiter also adopts a positive approach to governance and engagement, seeking to invest in companies that are well managed, but also have high standards of corporate governance and corporate responsibility. They feel this creates an appropriate culture in which to enhance longterm shareholder value. page 6

7 Jupiter Merlin Portfolios Concept & Overview The Jupiter Merlin Portfolios are a range of long only investment portfolios. The managers use their expertise to select and blend what they believe to be the best performing funds in each asset class and region with the aim of producing enhanced returns. l Jupiter Merlin Conservative Portfolio (launched September 2012) l Jupiter Merlin Income Portfolio (launched September 1992) l Jupiter Merlin Balanced Portfolio (launched October 2002) l Jupiter Merlin Growth Portfolio (launched September 1992) l Jupiter Merlin Worldwide Portfolio (launched June 1993) NOTE The three original funds (Income, Growth and Worldwide) were launched by Gartmore Briarcliff Portfolios, administered by Gartmore and managed by Godwins, consulting actuaries. Godwins were taken over by Aon in 1997, and as a result Lazard took over the management contracts of the three funds that year (managed by John Chatfeild-Roberts and team). Jupiter then took over the funds in The Funds The Investment Association sectors and fund sizes are shows below: Charges Multimanager funds are generally subject to higher charges than single funds as the fees of the underlying managers have to be covered as well as the fees of the multimanager. In considering this, it is important to look not just at the charges, but at how the fund has performed in order to identify whether the multimanager structure results in improved performance. Performance quoted is always net of annual fund charges. The OCF for the portfolios I share classes are as follows: Name OCF % Jupiter Merlin Conservative Portfolio (inc) 0.95 Jupiter Merlin Income Portfolio (inc) 1.54 Jupiter Merlin Balanced Portfolio (inc) 1.66 Jupiter Merlin Growth Portfolio (inc) 1.67 Jupiter Merlin Worldwide Portfolio (inc) 1.78 Source: Jupiter, December 2015 Name Sector Fund size (as at ) Jupiter Merlin Conservative Portfolio IA Mixed Investment 0-35% Shares 33m Jupiter Merlin Income Portfolio IA Mixed Investment 20-60% Shares 3.9bn Jupiter Merlin Balanced Portfolio IA Mixed Investment 40-85% Shares 1.6bn Jupiter Merlin Growth Portfolio IA Flexible Investment 1.9bn Jupiter Merlin Worldwide Portfolio IA Global 0.6bn Source: Jupiter The fund aims are as follows: Jupiter Merlin Conservative Portfolio Jupiter Merlin Income Portfolio Jupiter Merlin Balanced Portfolio Jupiter Merlin Growth Portfolio Jupiter Merlin Worldwide Portfolio To achieve long term capital growth with income by investing predominantly in unit trusts, OEICs, Exchange Traded Funds and other collective investment schemes across several management groups (where the underlying funds invest in fixed interest stocks, equities, commodities and property internationally); and directly in international fixed interest securities (including investment grade bonds, high yield bonds, government bonds, preference shares and convertible bonds), together with cash deposits and money market instruments. To achieve a high and rising income with some potential for capital growth by investing predominantly in unit trusts, OEICs, Exchange Traded Funds and other collective investment schemes across several management groups The underlying funds invest in equities, fixed interest stocks, commodities and property, principally in the UK. To achieve long-term capital growth with income by investing predominantly in unit trusts, OEICs, Exchange Traded Funds and other collective investment schemes across several management groups. The underlying funds invest in international equities, fixed interest stocks, commodities and property. To achieve long-term capital growth by investing predominantly in unit trusts, OEICs, Exchange Traded Funds and other collective investment schemes across several management groups. The underlying funds invest in international equities, fixed interest stocks, commodities and property, with a core in the UK. To achieve long-term capital growth by investing predominantly in unit trusts, OEICs, Exchange Traded Funds and other collective investment schemes across several management groups. The underlying funds invest in international equities, fixed interest stocks, commodities and property. The performance of the portfolios is looked at later in the report. page 7

8 The Management Team The Executive Committee, which has responsibility for the day-to-day running of the Jupiter Group, consists of two Main Board Directors and six Senior Executives. Maarten Slendebroek, Chief Executive Officer, Jupiter Main Board Philip Johnson, Chief Financial Officer, Jupiter Main Board Stephen Pearson, Chief Investment Officer, Senior Executive Adrian Creedy, Chief Operating Officer, Senior Executive Nick Ring, Global Head of Distribution, Senior Executive Lance DeLuca, Head of Operations, Senior Executive Paula Moore, Head of Fund Operations, Senior Executive Gillian Van Maaren, HR Director, Senior Executive Jupiter currently has 36 fund managers and 12 analysts. Jupiter also has a 17 strong private clients and charities department. The multimanager team has five members, headed by John Chatfeild-Roberts. John joined Jupiter in March 2001 to set up and lead the team running the Jupiter Merlin Portfolios. The team members are as follows: John Chatfeild-Roberts Head Jupiter Independent Funds Team John is the joint manager of the Jupiter Merlin Portfolios (unit trusts and SICAVs). Prior to joining Jupiter, John was Director and Head of the Fund of Funds team at Lazard Asset Management, and prior to that a fund manager and Head of Portfolio Management Service at Henderson Investors. John has qualifications in Economics from the University of Durham and is a Fellow of the Securities Institute. Algy Smith-Maxwell Fund Manager Algy is the joint fund manager of the Jupiter Merlin Portfolios (unit trusts and SICAVs). Prior to joining Jupiter in 2001, Algy also worked as a Fund Manager at Lazard Asset Management (1999 to 2001) and before that as a Fund Analyst on multimanager funds at Henderson Global Investors. was promoted to Fund Manager as of April From 2006 to 2011, Amanda was an Investment Director at JP Morgan Asset Management, and prior to that from 1996 to 2006 was Fund Due Diligence Vice President at JP Morgan Private Bank. Amanda is a Fellow of the Securities Institute. David Lewis Fund Manager David is the joint fund manager on the Jupiter Independent Funds Team. Prior to joining the Jupiter Independent Funds Team in May 2011, David was Assistant Fund Manager, Private Clients and Charities within Jupiter Asset Management from 2008 to 2011, and prior to that, Assistant Investment Manager with Bestinvest from 2007 to David is a CFA Chartholder and a Chartered Member of the Chartered Institute for Securities & Investments. NOTE The Jupiter Merlin Funds SICAV managed by the team are outside the scope of this review. Alistair Irvine Product Specialist Alastair joined Jupiter s Independent Funds Team as a Product Specialist in March Alastair began his career in 1985 with stockbroker Laurie, Milbank & Co. He spent over 20 years in equity research, initially analysing smaller companies then specialising in the Paper, Packaging & Printing sector. His most recent roles prior to joining Jupiter include: Managing Director, Deputy Head of equity research for Europe, Middle East and Africa at Merrill Lynch; and Principal, Partner and Head of Portfolio Management at Triple Point LLP, a fund management house specialising in Venture Capital Trusts and Enterprise Investment Schemes. Alastair has a business degree, is a Member of the Chartered Institute of Securities & Investments and holds both the Investment Management and Investment Operations Certificates. Algy is a Member of the CFA institute. Amanda Sillars Fund Manager Amanda is the joint fund manager on the Jupiter Independent Funds Team. Amanda joined Jupiter in May 2011 as a Fund Selection Specialist within the Jupiter Independent Funds Team and page 8

9 RSMR Comments Two of the three founders of the Jupiter multimanager business, John Chatfeild-Roberts, and Algy Smith-Maxwell worked together previously at Lazard. This has instilled a strong working bond and an understanding of where their individual skills are best applied. From a practical perspective, the leader on macro analysis has been John Chatfeild-Roberts with support from the other managers. Algy Smith-Maxwell has taken the lead on fund selection and research. This combination was in place until 2011 when a number of changes within the group and the increasing demands on the team meant that additional resources were required. In 2014 co-founder Peter Lawry left the team but continues to provide external insights/ consultancy into the team as and when required. In 2015 John Chatfield-Roberts relinquished his role as CIO of the business to concentrate on the Jupiter Merlin range as Head of Strategy Jupiter Independent Funds Team The various changes in structure in addition to the success in attracting assets led them to strengthen the team with the recruitment of Amanda Sillars and David Lewis in This meant that they could continue to cover the range and breadth of investments in the depth that is needed to run what is now a significant part of the overall business at Jupiter. page 9

10 The Fund Management Process There are four key aspects to the investment process. 1. The macroeconomic environment here the team focus on identifying key turning points in an accurate manner. This could be changes in interest rates, or other macroeconomic factors. 2. Manager Selection Ongoing quantitative and qualitative research enables the managers to identify which managers are likely to perform well in which economic environments. This means that they find the managers best suited to the current macroeconomic environment. 3. Portfolio construction following these first two steps, the managers can then construct the portfolios, based on their understanding and expectation of the current macroeconomic environment, finding funds that suit that environment and combine well together. 4. Ongoing monitoring the team believe that all the funds in a portfolio should be working hard and so they continually monitor the portfolios, bearing in mind their macroeconomic views, and make modifications and changes as required. Asset Allocation The Jupiter approach is such that there is no formal method for setting asset allocation. They do not believe in concentrating on investing assets on a geographical or sectoral view. The managers have the freedom to invest as they see fit within the constraints of the sector definitions. They look at the market environment on a regular basis and tactically adjust the portfolios to cater for the changing environment within a longer term strategic perspective. To enhance the effectiveness of this process they aim to select managers that can best exploit the current and prospective views they have on the economic environment. Manager / Fund Selection Process FUND MANAGER SELECTION Fundamental research is key to the Jupiter process. They need to identify which funds have the potential to perform well in different economic environments, and this is done through detailed manager research. The team undertake approximately 150 manager meetings a year, generally organised by sector. Before the interview (and six monthly for funds they hold), they conduct quantitative analysis and take data from a number of sources including other Jupiter managers, Financial Express and Factset to determine the broad characteristics of the fund, and to identify areas requiring further investigation. The output from this research is discussed at the meeting, together with the current environment and other soft factors which may affect performance. This research highlights to the team whether the fund is performing as expected, and for funds that are held within the portfolios whether there are trends away from expectation. As a result of this, the team can form an impression of the fund, identifying the circumstances in which it is likely to perform best and decide whether or not it is a fund they would like to invest in. The ongoing nature of the research also means that they can question the manager, and determine whether the fund continues to adhere to its investment philosophy. Portfolio Construction This ultimately brings together the first two disciplines of asset allocation and fund selection. The portfolios can be changed tactically to meet short term needs whilst still holding to the longer term objectives of each of the portfolios. The emphasis on researching funds leads them to have a bank of managers to select from who they know have certain characteristics that they can use to blend together to meet the macro views in the most appropriate way. It is this blending that creates the alpha generation for the portfolio combined with the tactical asset allocation overlay. Both aspects have featured in the long term performance of the range. The funds are selected for the portfolios on the basis of the managers having a high conviction in their selection. This means they will have a diversified portfolio but will aim not to diversify away potential gains by holding too many managers to avoid creating a benchmark tracking effect. Monitoring The Jupiter team looks at past performance on the basis that although you cannot extrapolate the past into the future, actual performance often gives clues as to how a fund manager might perform in a given future environment. They have a monitoring system in place so that they have a full picture of their current exposures, and use benchmarks as performance targets. Quantitative analysis provides a basis but each member of the team is encouraged to look at funds in different ways to develop a broad view which can maximise the challenge process during selection. Close attention is also paid to the correlation between funds to ensure the source of value is diversified. The team also has access to FE and Factset. BUY AND SELL DISCIPLINES The portfolios are managed on a team basis, with any buy or sell decisions being subject to a vote. As head of the team, John Chatfeild-Roberts has the casting vote. page 10

11 The team define some buying and selling criteria, with the buying criteria including the following: 1. The asset class is it attractive, and will it make money? 2. Key individuals the most value added comes from talented individuals and/or teams 3. Investment house in a climate of continual corporate change, they strive to assess critical factors within the relevant investment house 4. Turning points engendered by economic, market or company news. The news (e.g. on interest rates) may suit a team s style, market or capitalisation preference 5. Seasonal or liquidity consideration 6. They buy for the future, not the past The criteria for selling a fund would include: 1. The fund manager leaves, or there are other significant changes to the team. 2. Turning points macro changes or as above 3. Seasonal or liquidity considerations 4. Evidence of mean reversion in a fund manager s performance 5. Taking profits 6. A better idea to make clients money work harder Risk Management and Monitoring The Jupiter corporate style is one of giving the managers the freedom to manage their own funds as they see fit, and this extends not just to performance management, but also to risk management. In order to facilitate this, Jupiter have a comprehensive monitoring system in place to spot any early warning signs of underperformance, unjustifiable risk, or unsuitable style for a particular fund. Jupiter believe that their risk management process reinforces their manager accountability ethos, whilst ensuring that the managers have all the support and assistance that they need and that the clients interests are protected. They refer to their approach as monitoring rather than managing and they feel this approach allows their managers the freedom to outperform. software is used to monitor the risk and style exposures, check conformity with the fund objectives and provide the managers with predictive tracking error and beta statistics. The team also use two attribution systems FactSet Portfolio Analysis 4 (produces contribution / attribution at stock, sector, country and currency level) and BARRA Performance Analyst (produces risk model attribution taking exposures and attributing performance to the different factors). The attribution reports are produced monthly or more frequently if required and managers have full access to them. 2. Risk & Performance Review Committees Central to the risk management process are three committees with specific roles. These are as follows: a) Portfolio Review Committee this committee meets quarterly to discuss Jupiter s funds from a risk and performance perspective. It is chaired by Stephen Pearson, the CIO, and considers all statistical measures relevant to the measurement of performance and risk. b) Investment Risk Committee this committee meets monthly (except on the months that the Portfolio Review Committee meets), but only if there are specific matters of interest. The aim is to resolve any risk specific issues that have arisen over the course of the month. 3. Compliance Review Trading System (Charles River) Jupiter use an electronic trading system which is called Charles River, and this system stores specific investment restrictions. When the manager is considering a trade, they put details of the intended trade into the Charles River system for the Trading Desk to execute. If the proposed trade is likely to breach any restriction, the system will produce a warning prior to the trade being placed. All the transactions executed through the system are maintained in a full history profile, recording the real time quoted market process which helps to highlight any unusual trades. The monitoring process is as follows: 1. Independent in-house monitoring Performance and Portfolio Analytics team Funds are monitored on a monthly basis, using a range of risk and performance software to assist in this process. BARRA Aegis Portfolio Manager is the main tool used for the monitoring of the factor risk in the portfolios. This page 11

12 RSMR Comments The fundamental underlying philosophy of the Jupiter Merlin Portfolios is that they will not unduly expose investors to capital loss, and will provide them with a reasonable risk adjusted return. They are not absolute or target return managers but have a strong belief in taking investment decisions with this premise in mind. They recognise that the client base is mainly smaller longer term investors and therefore the backbone of the process is to provide returns without undue risk. There is also a bias to quality, value and transparency in the underlying fund selection to ensure the portfolios are simple to understand for the end investor. It would be wrong however to focus too much on the adherence to a fund process and benchmarks. In understanding the success they have had in running the Jupiter Merlin Portfolios it is necessary to look at how the team operates together and the emphasis that is placed on interpretation and qualitative analysis. The team have a long term view and recent internal analysis has shown that the average holding period for a fund is around nine years. There is also a high degree of consistency across portfolios meaning that they will use the same managers if it is appropriate to do so. There does of course have to be a certain level of rigour in economic analysis and in the selection and monitoring of underlying assets, but in this case the qualitative opinion has to be held up as equally if not more important. This is both at the macro and underlying fund level and has always been a key differentiator to the rest of the market for the team. In some ways any team, offering a fully active approach, but relying completely on statistics or fixed parameters should prompt questions for the investor as to what value the managers are providing. The Jupiter team have always emphasised the importance of the qualitative aspects of portfolio building. The macro analysis will regularly review ongoing economic changes but only in the context of their longer term views. Any changes made at a tactical level will co-ordinate with this longer term perspective. This is evidenced at a fund level where funds are not wholly traded on a tactical basis, although the weightings may change over time, as the managers view certain strategies as more effective in different environments. Examples of this can be seen in the length of time some managers have been in the various portfolios such as Neil Woodford at both Invesco and now Woodford AM or James Findlay at Findlay Park (American). Critics argue that this is now a reflection of the size of the funds and that they have less flexibility in running larger funds, particularly when it comes to moving assets when views change. It should be remembered however that the JIFT have built strong relationships with these managers over a long period of time and are unlikely to shift significant assets without careful planning and communication. We have been in the fortunate position of having researched the team and engaged with them for most of the period they have been together so believe we can speak with some confidence about the consistency with which they have operated over this time. The fundamental approach to using quality managers for the long term, combined with asset allocation based on having conviction in their macro analysis has not changed. Experience has improved their skills in operating this process but the fundamental qualitative approach has remained at the core of the philosophy. One of the key factors in determining how they have maintained a successful franchise has been that they have all worked together over a long period of time, learning through experience both from successes and importantly mistakes whilst refining their macro analysis through a number of different economic environments. This experience factor is not easily quantifiable in terms of defining the overall confidence we have in the managers but we believe it means that investors should be reassured in times of uncertainty that the managers will avoid short term tactical activity in the pursuit of longer term gain. page 12

13 Performance Performance and risk statistics for the funds are shown below. These are commented on further in the following section. Note Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Past performance is no guide to the future. Cummulative Performance The following table shows how the portfolios have performed over a number of timescales to 31st December month Cumulative Performance to Last Month End Overall 6 month Cumulative Performance to Last Month End Overall 1 year Cumulative Performance to Last Month End Overall 3 year Cumulative Performance to Last Month End Overall 5 year Cumulative Performance to Last Month End Overall 7 year Cumulative Performance to Last Month End Overall 10 year Cumulative Performance to Last Month End Overall Jupiter Merlin Conservative Portfolio Acc in GB IA Mixed Investment 0%-35% Shares TR in GB Jupiter Merlin Income Portfolio Acc in GB IA Mixed Investment 20%-60% Shares TR in GB Jupiter Merlin Balanced Portfolio Acc in GB IA Mixed Investment 40%-85% Shares TR in GB Jupiter Merlin Growth Portfolio Acc in GB n/a n/a n/a IA Flexible Investment TR in GB Jupiter Merlin Worldwide Portfolio Inc TR in GB IA Global TR in GB Source: FE Analytics Discrete Performance The table below shows how the portfolios have performed on a discrete basis. Discrete Annual Performance 31/12/2010 to 31/12/2011 Overal Discrete Annual Performance 31/12/2011 to 31/12/2012 Overal Discrete Annual Performance 31/12/2012 to 31/12/2013 Overal Discrete Annual Performance 31/12/2013 to 31/12/2014 Overal Discrete Annual Performance 31/12/2014 to 31/12/2015 Overal Jupiter Merlin Conservative Portfolio Acc in GB n/a n/a IA Mixed Investment 0%-35% Shares TR in GB Jupiter Merlin Income Portfolio Acc in GB IA Mixed Investment 20%-60% Shares TR in GB Jupiter Merlin Balanced Portfolio Acc in GB IA Mixed Investment 40%-85% Shares TR in GB Jupiter Merlin Growth Portfolio Acc in GB IA Flexible Investment TR in GB Jupiter Merlin Worldwide Portfolio Inc TR in GB IA Global TR in GB Source: FE Analytics page 13

14 Volatility Here we show the annualised volatility over the last three discrete years. Discrete Annual Volatility 31/12/2012 to 31/12/2013 Overal Discrete Annual Volatility 31/12/2013 to 31/12/2014 Overal Discrete Annual Volatility 31/12/2014 to 31/12/2015 Overal Jupiter Merlin Conservative Portfolio Acc in GB IA Mixed Investment 0%-35% Shares TR in GB Jupiter Merlin Income Portfolio Acc in GB IA Mixed Investment 20%-60% Shares TR in GB Jupiter Merlin Balanced Portfolio Acc in GB IA Mixed Investment 40%-85% Shares TR in GB Jupiter Merlin Growth Portfolio Acc in GB IA Flexible Investment TR in GB Jupiter Merlin Worldwide Portfolio Inc TR in GB IA Global TR in GB Source: FE Analytics Maximum Loss This table shows the maximum loss of the funds over the last three discrete years. Discrete Annual Max Loss 31/12/2012 to 31/12/2013 Overal Discrete Annual Max Loss 31/12/2013 to 31/12/2014 Overal Discrete Annual Max Loss 31/12/2014 to 31/12/2015 Overal Jupiter Merlin Conservative Portfolio Acc in GB IA Mixed Investment 0%-35% Shares TR in GB Jupiter Merlin Income Portfolio Acc in GB IA Mixed Investment 20%-60% Shares TR in GB Jupiter Merlin Balanced Portfolio Acc in GB IA Mixed Investment 40%-85% Shares TR in GB Jupiter Merlin Growth Portfolio Acc in GB IA Flexible Investment TR in GB Jupiter Merlin Worldwide Portfolio Inc TR in GB IA Global TR in GB Source: FE Analytics Beta This table shows the beta of the funds on a five year cumulative basis. Jupiter Merlin Conservative Portfolio Acc in GB 5 year Cumulative Beta to Last Year End Jupiter Merlin Income Portfolio Acc in GB 1.11 Jupiter Merlin Balanced Portfolio Acc in GB 0.96 Jupiter Merlin Growth Portfolio Acc in GB 0.97 Jupiter Merlin Worldwide Portfolio Inc TR in GB 0.87 Source: FE Analytics n/a page 14

15 Current Asset Allocation The following table summarises the current asset allocation of the funds. Jupiter Merlin Conservative Portfolio Jupiter Merlin Income Portfolio Jupiter Merlin Balanced Portfolio Jupiter Merlin Growth Portfolio Jupiter Merlin Worldwide Portfolio UK Equities Asia Pacific Equities US Equities European Equities Japan Equities Fixed Interest Other Cash Source Jupiter, as at RSMR Comments The performance of the portfolios over the longer term remains highly competitive and is in the higher quartiles for all portfolios. This has been delivered by strong macro driven judgements and careful fund selections. Equally over the last year performance has been competitive against the sector with the higher risk portfolios delivering slightly better returns than the lower risk Jupiter Merlin Income and Conservative portfolios. In 2015 the level of market momentum from 2014 pushed markets forward in the first quarter but this gradually changed as we went through several geopolitical problems in Greece and the Ukraine which caused markets to fall back. In the third quarter concerns over Chinese growth and uncertainty about US interest rate rises were the dominant factors in the continued slide of global markets. The final quarter of the year was flat with little positive news to push markets ahead. The recent performance of the Jupiter Merlin portfolios can be traced back to decisions made in late 2013 early 2014 when they reduced weightings in Asia as the US announced a scaling back of QE. They felt this would be positive for the dollar and would weaken emerging debt and equity markets. This, combined with a view on a slowing China meant reducing exposure to the whole Asian region. Clearly over 2015 this proved to be a positive after a weaker relative Throughout this period they have favoured equities over bonds and continue to do so which has generally been positive, other than in periods of uncertainty where yields fell. In addition the decision to hedge the Euro and the Yen against sterling was beneficial for the Jupiter Merlin Balanced, Jupiter Merlin Growth and Jupiter Merlin Worldwide portfolios as these currencies depreciated. Quarter two and three were difficult for all managers that took a pro-equity over a fixed interest stance and this is true of the Jupiter Merlin team. The longer term view of the managers is that this is the right stance given the likelihood of continued global growth and the inability to gain much from holding bonds, both government and investment grade. In quarter two, they continued to be fully invested believing that well-chosen equities, often with attractive dividend yields, combined with active fixed interest managers, should be able to ride out the holiday period when volumes are lower and market moves can be more dramatic as a result. They felt that this volatility could benefit the patient investor who is willing to take a longer time horizon and invest when others are fearful. This fully invested position was one of the reasons why they saw some relative underperformance in quarter two as a number of peer group managers increased cash levels ahead of rising volatility, improving their short term relative returns. Jupiter had a higher weighting in general to the US which was one of the weaker markets and Europe which had suffered from the problems in Greece. In addition there are a number of funds that on a relative performance basis had weaker quarters including GLG Strategic Bond, M&G North American Value and M&G Global Dividend which weakened the numbers overall. The current positioning of the portfolios to favour equities in a period of correction means that they have tended to underperform the current peer group mostly residing in the third quartile for the recent quarter for all the range. Over the year they improve to second and first quartile positions. This position reflects the views of the managers that this correction is overblown if it is based on the belief that the China slowdown is affecting global growth. It has of course hit the commodity sector more significantly including oil page 15

16 stocks which is reflected in some of the holdings, but more generally the real effect on US companies for example is less than is being priced in. The same can be said for the UK where the domestic market has led the recovery, seen in the strength of mid and small cap stocks which have remained resilient in the face of the recent correction. This leads the team to hold onto the view that western economies will gradually improve in the coming twelve months. At a fund level, they have seen little change with flows into the funds used for topping up existing holdings. As noted the managers have taken the opportunity to reduce the holdings in Asian and emerging markets over the last 18 months and this has helped the overall positioning and protection of the portfolios. They feel that the West will recover quicker than Asian and emerging markets as energy price deflation helps the western consumer rebound. The most recent strategy for the team has been to avoid noise in markets and to maintain their longer term belief in equities. They have generally avoided exposure to Western sovereign bonds, believing that the yields on offer have been unattractive and made the bonds riskier as a result. Furthermore, they believe the economic backdrop is continuing to improve so yields could well rise, decreasing the capital value of these bonds. This view was correct in 2013 but wrong in 2014 as the yields on these bonds fell and their prices rose commensurately, however they have not changed stance, as these assets have ascended to prices where they consider that only prolonged extremely low inflation or deflation would warrant a purchase. As we enter 2016 the managers outlook remains the same and they do not see any reason to change this, as to provide a deliberately contrarian view would expose the portfolios to greater risk. They continue to favour equities and, although there is greater apparent value in Asian and emerging market stocks, there is also the opportunity for things to get worse in equal measure and capital preservation is high on the agenda of the managers. page 16

17 The Portfolios Jupiter Merlin Conservative Portfolio RSMR Comments The portfolio has a three year track record which has generally been close to or above the sector average. The environment for fixed interest holdings has been difficult throughout 2015 if you have had a pro equity stance, as rates have not risen as many might have expected. The portfolio has relied on the strategic bond holdings to negotiate this environment and one of the funds (recently removed) has had a more difficult period affecting the overall returns in the portfolio. In equities, the managers have held onto the belief that quality and value are key elements of the portfolios approach to fund selection and 2015 proved to be a difficult year for value. These factors have not been helpful in the medium term and, as the fund was not able to participate in the FX hedging that took place for the higher risk portfolios, a macro factor advantage was also removed. Current positioning has seen the fund make some recovery against the sector and this bodes well for the longer term improvement in returns as we move into a slower growth, rising interest rate environment. page 17

18 Jupiter Merlin Income Portfolio RSMR Comments The Income portfolio remains the largest and most popular in the range and has continued to offer consistent value with the fund at the head of the sector over most longer-term time periods. There have been some medium term fund related performance issues in the portfolio with one fixed interest fund and one equity fund having weaker than expected returns in They have gradually resolved these issues by removing one fund and reducing exposure to the other. As a lower risk income fund, the portfolio also had a greater value bias which has been a drag on returns in what has been a quality growth based market recovery. The managers recognise this but also appreciate over the longer term these factors will equalise as value recovers. They have changed their fixed interest holdings to represent current thinking adding two funds from Twenty-Four AM and a Hermes Strategic Credit fund giving a more diversified and pragmatic approach. In the most recent period the fund has seen performance pick up based on decisions made in 2013 early 2014 which took over a year to come to fruition in the portfolios. This switch out of emerging and Asian equities has been a benefit in 2015 and this is a theme that will be maintained for the start of There have also been some very strong fund performance numbers from CF Woodford Equity Income and Aptus Global Financials (a specialist global fund in the portfolio) which have helped deliver the improving performance profile. page 18

19 Jupiter Merlin Balanced Portfolio RSMR Comments The longer term track record remains intact after a difficult period in global markets in In some ways this has helped the team as being generally overweight equities was the right approach in 2015 as long as you were overweight and underweight in the right areas. The decision made in 2013 / 14 to be positive on areas such as Europe and Japan and to have less conviction in Asian and emerging market areas was the right one but has taken time to come through. As well as making the decision in these areas, holding property has added diversity and capital growth in what has been a flat year for most areas in terms of return. The balanced portfolio has diverse sources of income but has only held property for a relatively short period of time (Mayfair Capital Commercial Property Trust). Overall the portfolio has had the benefit of being equity biased and being weighted correctly. The use of currency hedging also added value as the Euro and Yen depreciated relative to sterling. In UK equites (32% of the portfolio) the fund has benefitted from holding some solid pragmatic funds such as AXA Framlington UK Select Opportunities alongside Artemis Income as well as some other very strong funds for example CF Woodford Equity Income. In addition the global equity element of the portfolio has benefitted from the specialist input of the Aptus Global Financials fund and the Fundsmith Equity fund. Many of these managers are longer term holdings. Not all selections have added relative value however as the Odey European Focus fund has had a difficult period as has high yield in general and the Kames High Yield fund. page 19