Mark Dampier: Jupiter's fund is on another planet

The Analyst

With thousands of funds to choose from, it is perhaps unsurprising that some promising ones get overlooked. A prime example of this is the Jupiter Growth and Income Fund, which has been somewhat neglected, possibly because it was overshadowed by its better publicised stable mates when Jupiter launched a number of UK funds in its early days.

It is managed by Philip Matthews, who joined Jupiter in 1999, having been recruited by William Littlewood straight out of university. He began managing money in 2002 and took over the Growth and Income Fund four years ago. Given its clear objective of achieving growth in both income and capital, you might expect it to be in the UK Equity Income and Growth sector. In fact it falls under the UK All Companies sector – if it switches sectors it would lose its track record, which would be a shame because, under Mr Matthews' stewardship, it has performed extremely well. In fact, it more than gives better-known managers such as Neil Woodford a run for their money.

The fund is less than £60m in size, which gives it a lot of flexibility. At the beginning of 2009, Mr Matthews felt the market was cheap on a long-term view, and that you stood to be rewarded for taking risk in the more economically sensitive sectors rather than the more defensive companies. Of course, this was a difficult period for many firms but a large number have since prospered. Among the shares he invested in at the time he cites the example of the engineering group IMI, which had a dividend yield of 8 per cent and, unlike some other firms, a strong balance sheet. He believes his discipline prevents him falling into the classic trap of buying a high-yielding share of a company that is in decline.

Mr Matthews doesn't believe there will be a further rebound in the more economically sensitive areas from here and he says the market now seems to be ignoring the prospects of more defensive companies with stronger balance sheets. He is therefore on the lookout for companies with high quality, stable earnings, but is wary of areas that have already become fashionable, such as UK stocks exposed to emerging market growth, believing these companies already command a sizeable premium. He prefers companies such as GlaxoSmithKline, which still offers significant emerging market exposure but at a much cheaper level. He also tends to look for companies which do not require a lot of capital expenditure, as they will find it far more difficult to grow their dividends. Another area he dislikes is mining stocks, which he believes are overvalued at current levels. With a market yield of about 3.5 per cent, I expect this fund to show some very strong dividend growth. Approximately 75 per cent of the portfolio is in FTSE 100 companies, with the balance in mid-caps. Mr Matthews particularly favours the Lloyds Insurance companies at present, believing them to be undervalued.

The fund's year-on-year dividend growth has been 20 per cent, and despite it not being especially well known by the investing public there has been a strong flow of money into the fund. However, this has undoubtedly been helped by Jupiter's fund of funds team, who started buying into the fund a few months ago. This is always a good sign in my view.

In my opinion this is a classic income-orientated fund and is a worthy inclusion in an income portfolio, possibly dovetailing with some bigger and better-known funds. It also illustrates how careful you need to be when looking at sectors. Many funds simply do not reflect the sector they are in and a detailed inspection has never been more important. If you look at what is under the bonnet of this fund, I think you could well become a buyer.

Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent