ALPHA GENERATION IDENTIFYING TALENT Multi-Manager Academy, September 2015 ON THE PLANET TO PERFORM
1 Learning objectives Advisers should leave the presentation with: An understanding of the benefits of active management whilst offering balanced views on passive investment An understanding of new measures when seeking added value from fund managers, highlighting active share An appreciation of price vs value and how costs of multi-manager funds should be presented An awareness of examples of active managers that can add value to clients portfolios
Agenda Active and passive Performance, price, conviction, proactive How to identify talent Talent is integral in seeking alpha Appendix
4 Active and passive Performance Underperformance of active management Active management relative to the index* Active and passive The facts % of managers that fail to beat market over 5 years Global bonds 53 Majority of active managers underperform their respective benchmarks USD diversified bonds UK equity GBP diversified bonds European equity Eurozone equity EUR diversified bonds Global equity GBP government bonds Emerging market equity US equity 58 63 66 69 73 74 77 77 78 84 Active management generally more expensive than passive Passive management provides full market exposure both in market upswings and downturns Passive stock holdings are entirely backward looking The views expressed are those of the presenter at the time of preparation and may change in future. *Source: Vanguard UK using Morningstar, chart published on ft.com on 10.10.14.
Annualised performance ALPHA GENERATION IDENTIFYING TALENT 5 Active and passive Price Searching the UK All Companies sector Active management works Key findings 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% Active funds Average passive fund underperforms the average active fund Passive funds Average OCF: 1.3% Importance of tracking error There have been fund managers that have Active funds average 7.8% been able to achieve significantly higher than average returns Passive funds average 6.3% Price is not a good guide for identifying good fund managers Sector average return: 7.3% Market return*: 7.0% 0% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% OCF This slide is for illustrative purposes only. Source: FE, 30.06.05 to 30.06.15. The Investment Association UK All Companies sector; all funds with 10 year history and quoted OCF, TR, bid to bid, in GBP. *The market return refers to the FTSE All-Share Index.
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% of firms differing from benchmark index ALPHA GENERATION IDENTIFYING TALENT 7 Active and passive Conviction Active share and R² filtering out the closet indexers The measurement of conviction* Active share measures the share of a fund s holdings that differs from the benchmark 80% 70% UK US An active share of 100% implies a zero overlap with the benchmark 60% R² represents the percentage of a fund s movements that are related to a benchmark 50% Index trackers carry an R² of 95 100%** 40% 30% 20% Radically different* Not radically different *Source: SCM Private, chart published on ft.com on 04.10.13. Note: 70%+ active share. **Source: ftadviser.com, published on 15.06.15.
8 Active and passive Conviction Passive tracker funds own yesterday s winners. FTSE 100 breakdown by sectors on specific dates 100% 90% 80% 20.0% 28.9% 14.9% Technology Financials 70% 60% 50% 40% 30% 20% 10% 9.7% 19.8% 13.3% 4.5% 16.0% 9.5% Utilities Telecommunications Consumer Services Health Care Consumer Goods Industrials Basic Materials Oil & Gas 0% 29/12/1995 31/12/1999 28/02/2003 31/05/2007 27/02/2009 31/12/2010 30/01/2015 The views expressed are those of the presenter at the time of preparation and may change in future. Source: FactSet, 30.01.15.
9 Active and Passive Conviction Jupiter UK Growth Fund 18% 0 38bn 34bn 12bn Cash profit Capex Dividend
Agenda Active and passive Performance, price, conviction, proactive How to identify talent Talent is integral in seeking alpha Appendix
11 How to identify talent? Quantitative Quantitative and statistical measures The historical outcomes Discrete and cumulative performance after fees Analyse the downside Risk / reward Maximum drawdown Peak to trough Conviction Active share The views expressed are those of the presenter at the time of preparation and may change in future.
12 How to identify talent? Quantitative The importance of downside analysis Maximum loss Can be defined as the loss borne when all returns have been taken into account from the start of an investment period (can help aid discussion around a client s capacity for loss) Maximum drawdown The accumulated loss of buying an investment at its highest local maximum price and selling it at its lowest local minimum price The views expressed are those of the presenter at the time of preparation and may change in future.
13 How to identify talent? Qualitative Qualitative More of an art, than a science Qualitative understanding and awareness Keys when seeking to unlock sustainable outperformance Use numerous and varied sources Keep a very broad universe Distinguish talent from market style The credentials Aim of the portfolio Return focus / Risk focus Management team Track record / Credentials Investment process and style Construction of the portfolio The future Portfolios managers Economic & Market outlook Current positioning and outlook of the portfolio Understand team dynamics Get personal! Once found, be brave, back your conviction and be patient The views expressed are those of the presenter at the time of preparation and may change in future.
Agenda Active and passive Performance, price, conviction, proactive How to identify talent Talent is integral in seeking alpha Appendix
15 Findlay Park North American James Findlay Value focused US equity fund which takes an absolute return mindset Manager performance* 550% Findlay Park American FE Equity Small Cap USA 450% 350% 250% 150% 50% -50% Mar-00 Apr-03 May-06 May-09 Jun-12 Jun-15 Managed by a well established team with James at the head Take a value driven investment approach, willing to move throughout the US market Hold some cash to take advantage of opportunities Structural weighting of 5% to Latin America Past performance is no guide to the future. The views expressed are those of the presenter at the time of preparation and may change in the future. Any holdings examples are used for illustrative purposes only and should not be viewed as investment advice. Source: FE, Findlay Park, total return in USD, net income reinvested. *Period over which James Findlay has been the lead manager on the fund, from 31.03.00 to 30.06.15.
16 Jupiter UK Growth Steve Davies Identifies growth at a reasonable price, willing to take conviction positions Manager performance* 60% 50% Jupiter UK Growth Inc IA UK All Companies 40% 30% 20% 10% 0% Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jun-15 Steve uses his background as an analyst to construct detailed models with stock target prices Incorporates macro economic views to help guide his sector and stock allocations Happy to take conviction positions where he sees value and avoid areas that he deems structurally challenged Past performance is no guide to the future. The views expressed are those of the presenter at the time of preparation and may change in the future. Any holdings examples are used for illustrative purposes only and should not be viewed as investment advice. Source: FE, Jupiter, total return in GBP, net income reinvested. *Period over which Steve Davies has been the fund manager on the Jupiter UK Growth Fund, from 31.01.13 to 30.06.15. IA = The Investment Association.
17 Odey European Focus Oliver Kelton Pragmatic manager investing in Pan-European equities Manager performance* 180% 160% Odey European Focus A Inc EUR FE Equity Europe inc UK 140% 120% 100% 80% 60% 40% 20% 0% Value driven and opportunistic manager Takes conviction positions unconstrained by benchmark Keen eye on downside limitation -20% Mar-10 Apr-11 May-12 May-13 Jun-14 Jun-15 Past performance is no guide to the future. The views expressed are those of the presenter at the time of preparation and may change in the future. Any holdings examples are used for illustrative purposes only and should not be viewed as investment advice. Source: FE, Odey, total return in EUR, net income reinvested. *Period over which Oliver Kelton has been the lead manager on the fund, from 01.04.10 to 30.06.15. Oliver Kelton moved his portfolio from Waverton to Odey in March 2015. The portfolio name was changed on 01.07.15. IA = The Investment Association.
18 Mayfair Capital Commercial Property Net yield of 5.75% Tailor made for the Jupiter Merlin portfolios Tower Retail Park, Poole L Oréal, Sherwood Park, Nottingham Travelodge, Ipswich Kilburn & Stroud LLP, London Any holdings examples are used for illustrative purposes only and should not be viewed as investment advice. Yields quoted are not guaranteed and may change in the future. Jupiter has the right to use these images. Source: Mayfair, 30.06.15.
19 Learning outcomes Advisers should leave the presentation with: An understanding of the benefits of active management whilst offering balanced views on passive investment An understanding of new measures when seeking added value from fund managers, highlighting active share An appreciation of price vs value and how costs of multi-manager funds should be presented An awareness of examples of active managers that can add value to clients portfolios
Return ALPHA GENERATION IDENTIFYING TALENT 20 Jupiter Merlin Portfolios Jupiter Merlin: 5 strategies each with a different risk / reward profile to suit your clients Jupiter Merlin Conservative Portfolio Jupiter Merlin Income Portfolio Jupiter Merlin Balanced Portfolio Jupiter Merlin Growth Portfolio Jupiter Merlin Worldwide Portfolio Higher IA sector parameters Equities 0-35% Fixed Income & Cash Minimum 45% IA sector parameters Equities 20-60% Fixed Income & Cash Minimum 30% IA sector parameters Equities 40-85% IA sector parameters Equities Maximum 100% IA sector parameters Equities Maximum 100% Equities 34.2% Fixed Interest 57.8% Other 1.8% Equities 60.1% Fixed Interest 34.1% Other 4.9% Equities 84.1% Fixed Interest 7.9% Other 4.7% Equities 97.7% Other 1.8% Cash 0.4% Equities 99.7% Cash 0.3% Lower Cash 6.1% Cash 0.9% Cash 3.3% Risk Higher Source: Jupiter, 31.07.15. Distribution Technology risk profiles: The risk profile for the Jupiter Merlin Portfolios are produced and supplied by Distribution Technology and are not certified by Jupiter. The Portfolios are not managed to a risk profile. The risk profile of the Portfolios may change over time. Distribution Technology risk profiles as at Q1 2015. IA = The Investment Association.
21 Jupiter Merlin Portfolio performance Year to date performance Jupiter Merlin Income Acc 0.05% 2 nd quartile IA Mixed Investment 20 60% Shares Jupiter Merlin Growth Acc 1.75% 1 st quartile IA Flexible Investment Jupiter Merlin Worldwide Inc -0.33% 2 nd quartile IA Global Jupiter Merlin Balanced Acc 1.55% 1 st quartile IA Mixed Investment 40 85% Shares Jupiter Merlin Conservative Acc -0.49% 2 nd quartile IA Mixed Investment 0 35% Shares Past performance is no guide to the future. Source: FE, bid to bid, net income reinvested, in GBP, from 31.12.14 to 31.08.15. IA = The Investment Association.
Annualised performance ALPHA GENERATION IDENTIFYING TALENT 22 Underlying UK Equity Funds Average volatility and performance over last 3 years UK Equity funds within Jupiter Merlin Balanced Portfolio Name Volatility Performance A Artemis Income 9.8 10.2 15% 14% D Average volatility 10.1% B C AXA Framlington UK Select Opportunities Jupiter Growth & Income 10.6 10.5 10.6 11.6 13% 12% E C D E Royal London UK Equity Income Wise Investments Evenlode Income 10.0 14.5 9.4 12.2 F FTSE All-Share 10.4 8.6 11% 10% A B Average performance 11.3% 9% F 8% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0% 15.0% Annualised volatility Past performance is no guide to the future. Source: FE, bid to bid, net income reinvested, in GBP, from 31.08.12 to 31.08.15.
23 Maximum loss vs. sector average over last 5 years Jupiter Merlin Income Portfolio Acc IA Mixed Investment 20% 60% Shares Jupiter Merlin Balanced Portfolio Acc IA Mixed Investment 40% 85% Shares Jupiter Merlin Growth Portfolio Acc IA Flexible Investment Jupiter Merlin Worldwide Portfolio Inc IA Global 0% 5% 10% 15% Past performance is no guide to the future. Source: FE, bid to bid, net income reinvested, 31.08.10 to 31.08.15. Data shown for portfolios operating for 5 year period. Maximum loss represents the worst running return over a period, e.g. the longest running consecutive loss without making a gain.
24 Jupiter Independent Funds team: strong and well established Best Multi-Manager/Asset Provider, winner, 6 years in a row (2009 14), Money Marketing Awards John Chatfeild-Roberts Fund Management Director, Head of Independent Funds team 25 years experience David Lewis Fund Manager 9 years experience Amanda Sillars Fund Management Director 19 years experience Alastair Irvine Product Specialist 30 years experience Algy Smith-Maxwell Fund Management Director 22 years experience Past performance is no guide to the future. Years of industry experience as at 30.06.15. Note: Peter Lawery is a consultant to the Jupiter Independent Funds team, with 25 years of industry experience.
25 Jupiter Merlin Here to help
Agenda Active and passive Performance, price, conviction, proactive How to identify talent Talent is integral in seeking alpha Appendix
27 Conclusion Talent is integral in seeking alpha Performance is what matters to our clients Jupiter Merlin Income Portfolio Jupiter Merlin Balanced Portfolio 200% Jupiter Merlin Income Portfolio Acc 155.8% 250% Jupiter Merlin Balanced Portfolio Acc 198.8% IA Mixed Investment 20% 60% Shares 80.7% IA Mixed Investment 40% 85% Shares 141.2% 150% 200% 150% 100% 100% 50% 50% 0% 0% -50% Sep-99 Dec-02 Feb-06 Apr-09 Jun-12 Aug-15-50% Oct-02 May-05 Nov-07 Jul-10 Jan-13 Aug-15 Past performance is no guide to the future. Source: FE, bid to bid, net income reinvested, in GBP, to 31.08.15. Jupiter Merlin Income from 30.09.99 (manager inception); Jupiter Merlin Balanced from 01.10.02 (since launch). IA = The Investment Association. The Jupiter Merlin Income Portfolio was managed by John Chatfeild-Roberts and his team at Lazard from 1 October 1999 until March 2001. In March 2002, the management of the fund was fully transferred to Jupiter Unit Trust Managers Limited, under the same management team. The Jupiter Merlin Balanced fund increased its annual management charge and its registration fee as from 01.09.05. This has had the effect of increasing the total expense of the fund by approximately 1% p.a. The performance would have been correspondingly reduced had the current fees and charges applied since launch. As from the same date the Fund s objective changed to aim for growth with income as opposed to growth only and this may impact performance going forward.
28 Conclusion Talent is integral in seeking alpha Performance is what matters to our clients Jupiter Merlin Growth Portfolio Jupiter Merlin Worldwide Portfolio 300% 250% Jupiter Merlin Growth Portfolio Acc 232.5% IA Flexible Investment 91.3% 250% 200% Jupiter Merlin Worldwide Portfolio Acc 189.7% IA Global 83.9% 200% 150% 150% 100% 100% 50% 50% 0% 0% -50% Sep-99 Dec-02 Feb-06 Apr-09 Jun-12 Aug-15-50% Sep-99 Dec-02 Feb-06 Apr-09 Jun-12 Aug-15 Past performance is no guide to the future. Source: FE, bid to bid, net income reinvested, in GBP, from 30.09.99 to 31.09.15. Manager inception: 30.09.99. IA = The Investment Association. The Jupiter Merlin Growth and Worldwide Portfolios were managed by John Chatfeild-Roberts and his team at Lazard from 1 October 1999 until March 2001. In March 2002, the management of the funds were fully transferred to Jupiter Unit Trust Managers Limited, under the same management team.
29 Jupiter philosophy The power of exceptional talent Philosophy Ability of talented individual active managers to generate consistent, competitive, relative performance Process Construct portfolios diversified across asset class, geography and investment style with their foundation in talented individual investors Aim Invest in the right people, in the right quantity at the right time The views expressed are those of the presenter at the time of preparation and may change in future.
30 Active and passive Conviction We believe that active asset allocation is a moral obligation Asset allocation of the Jupiter Merlin Growth Portfolio 100% 90% 80% 11.1% 13.0% 10.0% 4.7% 10.7% 2.1% 4.9% 3.9% Cash Gold 70% 19.9% Fixed Interest 60% 50% 40% 30% 21.2% 16.1% 3.3% Global Emerging Markets Asia Japan Europe 20% US 10% UK 0% 31/12/2002 31/12/2003 31/10/2005 28/02/2009 31/05/2009 31/05/2011 30/11/2013 The views expressed are those of the presenter at the time of preparation and may change in future. Historical example for illustrative purposes only. Source: Jupiter, 30.06.15.
Growth ALPHA GENERATION IDENTIFYING TALENT 31 Active and passive Proactive Passive tracker funds own yesterday s winners. FTSE All-Share sector deviations during market stress 20% 10% 28.9% 14.9% FTSE All-Share Leisure Goods 8.8% 0% 9.7% 19.8% 13.3% FTSE All-Share Health Care Equipment & Services 1.3% FTSE All-Share -0.1% -10% FTSE All-Share Oil & Gas -11.5% -20% FTSE All-Share Basic Materials -21.2% -30% 4.5% 16.0% FTSE All-Share Mining -25.2% 9.5% -40% Dec-14 Feb-15 Apr-15 May-15 Jul-15 Aug-15 The views expressed are those of the presenter at the time of preparation and may change in future. Source: FE, bid to bid, net income reinvested, in GBP, from 31.12.14 to 31.08.15.
32 Disclosure This presentation is intended for investment professionals and not for the benefit of retail investors. 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. Any data or views given should not be construed as investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given. Past performance is no guide to the future. Holdings examples are for illustrative purposes only and are not a recommendation to buy or sell. Quoted yields are not guaranteed and may change in the future. Awards and Ratings should not be taken as a recommendation. Jupiter Merlin Portfolios: Higher charges apply. The NURS Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request. These portfolios can invest more than 35% of their value in securities issued or guaranteed by an EEA state. Jupiter UK Growth: The Key Investor Information Document (KIID), Supplementary Information Document (SID) and Scheme Particulars are available from Jupiter on request. This document contains information based on the FTSE 100, FTSE All-Share, FTSE All-Share Leisure Goods, FTSE All-Share Household Goods & Home Construction, FTSE All-Share Oil & Gas, FTSE All-Share Basic Materials and FTSE All-Share Mining Indices. The FTSE 100, FTSE All-Share, FTSE All- Share Leisure Goods, FTSE All-Share Household Goods & Home Construction, FTSE All-Share Oil & Gas, FTSE All-Share Basic Materials and FTSE All- Share Mining Indices are calculated by FTSE. FTSE does not sponsor, endorse or promote the product referred to in this document and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading. All copyright and database rights in the index values and constituent list vest in FTSE. For your security we may record or randomly monitor all telephone calls. Jupiter Unit Trust Managers Limited (JUTM) and Jupiter Asset Management Limited (JAM) are both authorised and regulated by the Financial Conduct Authority and their registered address is 1 Grosvenor Place, London SW1X 7JJ. No part of this presentation may be reproduced in any manner without the prior permission of JAM or JUTM. 10347_55317_MERLIN_MMA_RH_1015 ON THE PLANET TO PERFORM