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&#39Fund industry bullish after two years of navel-gazing&#39

Cost-cutting exercises are over for most fund firms as a bullish mood grips the market, despite continued economic uncertainty, according to Jupiter.

In an interview with Money Marketing, joint managing director Gordon Davidson says most groups have now slashed as many costs as they can, marking the end of a two-year “period of navel-gazing” that he blames on the bear market.

Although he predicts that stockmarkets will move only sideways in the foreseeable future, he says he has been struck by how rapidly the mood has changed, especially among brokers.

Davidson says: “Institutions are coming back in and there now seems to be a bullish consensus, which has happened very quickly. Our overall view is that, over the next three to five years, European markets, including the UK, will produce annual returns of around 5 to 7 per cent, way below the average for the past 15 or 20 years.”

Nevertheless, Davidson, who took on his role last November, believes Jupiter is well placed to exploit the “phenomenally cheap valuations” of some individual stocks.

He is especially buoyed by the success of the distribution fund which, since launch last February, has taken in more than £100m.

Away from the core areas, Davidson is excited by the emerging European opportunities fund, managed by Elena Shaftan, which has outstripped expectations since its launch last September.

He says: “It has been fantastic. Russia is an under-researched area and Elena thinks the fund is a seven-year play, with monetary union coming up. But we have a wealth of talent and expect all our funds to continue doing well, which is a reflection of how highly we rate the managers.”

In terms of the future distribution landscape, Davidson says it is too soon to take a firm position although he expects depolarisation to prompt at least a partial shift to the German model. He says: “From all the conversations I have had with companies, no one really knows what will happen but our view is that banks will become more active in distributing funds.

“There is a reasonable chance that we will become more like Germany, where the banks dominate fund distribution.”

Some but not all life companies will become more influential, he believes, as they move towards open architecture and seal alliances. But he says Jupiter, although a firm supporter of strategic partnerships, is wary of diluting their effect by entering into them at random, arguing that “outperformance should come at a premium”.

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