The Analyst: This is no time to be a Eurosceptic
Saturday 24 November 2007
Success breeds success. The market leaders in a particular industry are better able to attract world-class talent, which in turn strengthens their positions as experts. In the investment world, Jupiter is a prime example.
Under the stewardship of Edward Bonham Carter, the group has gone from strength to strength. Like bees around a honeypot, it attracts high-quality fund managers, but it also brings on the talent within the organisation.
Jupiter is extremely well known for its UK funds, especially the Jupiter Income Trust, and of course for Eastern Europe. It has been growing its Asian team, too, and I would not be surprised to see Jupiter launch more funds investing in this region in the future. Clearly, emerging markets have been the flavour of the year – I remain optimistic on them – but I think investors should be careful not to ignore other opportunities.
Europe has long been a backwater for UK investors, despite its history of strong performance and talented fund managers. Perhaps the reason is because we tend to view Europe as a bureaucratic nightmare held back by left-wing politicians who are 50 years behind the times. However, Europe is nevertheless home to many world-class companies that have prospered despite the politics.
The Continent is a highly competitive space for fund managers, and it is easy for quality offerings to be lost in the crowd. One fund which I believe has been overlooked is the Jupiter European Fund.
To be fair, the last couple of years have seen the fund struggle. The fund manager is Alex Darwall, who took it over at the beginning of 2001, and he is very much his own man. He stuck by his principles and didn't buy into the credit bull-market, which saw the share prices of low-quality assets soar compared to the high-quality ones. The fund's performance relative to its peer group suffered as a result.
Mr Darwall's portfolio tends to contain companies with strong balance sheets, low levels of debt and an international outlook. Indeed, this fund is a great example of globalisation in action. Mr Darwall favours companies with unique products or services that are able to trade in a global marketplace. This, of course, means that they are less affected by local issues in their own economies.
Banks and property companies don't usually fall into this category, so the Jupiter European portfolio is not particularly exposed to these areas, which have seen so much turmoil this year.
When I met him, Alex Darwall pointed out that Europe hasn't experienced the same rampant credit bubble that we have seen in the UK and US, and so shouldn't suffer the same scale of problems we have seen here.
He doesn't typically worry too much about the overall economic outlook. In his opinion, market analysts have spent too much time wringing their hands about a consumer slowdown in the US and have missed what is happening in emerging markets, particularly the BRIC economies (Brazil, Russia, India, China). He prefers companies pointing more towards this direction.
The themes in the Jupiter European portfolio revolve around energy, the environment, media and pharmaceuticals. Energy is in ever greater demand due to the industrialisation of emerging markets, and Mr Darwall believes the area to look at is oil services. One of his largest holdings is Cie Gen Geophysique, which is involved in exploring for oil through seismic testing. The share price has been weak recently because the company is doing its own drilling rather than hiring out its expertise to another firm.
Another holding in the fund is Novozymes, a world leader in environmental enzymes. Examples include enzymes that will allow us to wash clothes in cold water (thereby saving energy), and enzymes for pig food that means the pigs retain more of the food they eat.
The 10 largest positions in the portfolio make up a large chunk of the fund – 61 per cent – reflecting the manager's conviction about the long-term potential of the companies. Mr Darwall is a classic "buy and hold" investor, believing that if you can find quality companies, share price growth will eventually follow.
The Jupiter European Fund is a high-quality portfolio, which is as much invested in Europe as it is in the major global themes. While the fund has had a difficult time, I believe this is the type of portfolio that will prosper in the more difficult economic conditions we're likely to see over the next two or three years.
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
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