Jupiter chief executive officer Edward Bonham Carter has called on the industry to go “back to basics” as the market continues to struggle in the midst of a deleveraging cycle.
He says the lesson the industry should learn from the sovereign debt crisis is that there are no risk-free assets and that the resilient business models are often large-cap equities, with strong balance sheets and where the dividend payout and dividends in general will rise in time.
He says: “There is a clear need for a focus on back-to-basics investment, where returns for investors come from dividends and the reinvestment of that dividends. The whole industry is obsessed on figuring out the unknowable and is sometimes forgetting the basics, namely identifying good companies that reinvest their surplus profit above their cost of capital. These will generally be good investments.”
Bonham Carter believes we are still in the midst of the “hippo market”, which he says has been the case since 2003. The “hippo market” reflects the fact that indices are doing very little in the long-term with significant short-term bouts of volatility.
He says: “That market is alive and kicking. We are in a huge de-leveraging cycle, firstly it was the consumer sector and now it is in the government sector. There are still problems in the consumer sector but the issues are now in the sovereign balance sheets and the eurozone is a large sub-section of that. It is part of the convergence of the emerging world catching up with the west, as the latter deals with the problems it has with living beyond its means.”
Bonham Carter says a eurozone resolution depends on whether Germany is willing to underwrite the whole system.
He says: “Whether it is from euro/stability bonds, Germany is going to stand behind the system. That is the least bad of a series of unattractive choices. The euro system has to break apart or come together in a more fiscal union.”
Bonham Carter says investors are going to have to accept that the next two or three years will see low growth in the West.
He says: “We are bobbling around the 1 per cent mark and below. Unemployment and the outlook for real wages will be challenging. The offset to that is that the US is looking a bit more robust while the corporate sector is looking in a reasonably healthy state.”
Bonham Carter says that with bond market dislocations and a raft of other problems, Jupiter was a resilient business in 2011. He says flows have been challenging but are still up after a difficult year.
He says: “We tend to underperform in really strong markets, but that does not mean we always have a value bias. Our biggest fund, the fund of funds offering headed by chief investment officer John Chatfeild-Roberts has done well in an extremely difficult year.”
This year will mark the fifth anniversary of Jupiter’s management buyout, which was backed by TA Associates. It then relisted in 2010. Bonham-Carter says the firm, which has almost £18bn of retail assets under management at November 2011, has achieved all of its aims since the MBO and subsequent IPO. He says: “The main reason for doing the IPO was to reduce the debt from the MBO and that has been the case.
“We have a strong company, with strong bench strength in terms of fund managers coming through, our product range has expanded and we now have a greater presence in Europe.”
Notable additions to the team include convertibles pair Miles Geldard and Lee Manzi, who joined in July 2010 from RWC. Former Invesco Perpetual emerging markets stalwart Kathryn Langridge has also joined the asset manager from Lloyd George Asset Management, while the team has also bolstered its financial franchise through the re-appointment of Guy de Blonay from Henderson Global Investors and the launch of two new funds for its financials franchise.
Looking at further additions, Bonham Carter says “We are in the global equities space but we want to do more in the future. Another area we are already exposed to but would like to do more in is diversified portfolios and asset allocation. People recognise they are living longer and need to provide for it.”
Looking forward to the introduction of the RDR in 12 months time Bonham-Carter says it would be foolish for the firm to say it is completely ready.
He says: “As an asset manager your main requirement is ensuring that the quality and range of funds is the best it can be. We are also keen to invest in our brand in the wider sense, that is not the differentiating point but a crucial differentiating point. Customers will always want to deal with well-known and trusted companies.”
Bonham Carter on…
Inflation concerns in the UK
“I agree with the Bank of England, it is taking time but the CPI and RPI figures are on a downward path. These cost increases are imported cost increases and are working through the system.”
Absolute return funds
“Absolute return funds are not an easy thing to do. There is structurally a demand for them if they perform as people want to take less risk. The big question is how this is delivered. Markets have been tricky in the last 18 months and many talented investors on the absolute return and relative side have not done well. There is still confusion on what they deliver but I wouldn’t rule out doing more if we found the right person for the job.”
“Low-cost, passive vehicles and ETFs will continue to be popular as people still want them. Others will say value for money is the key. We are genuinely of the view that our strategy is active alpha. Our strategy is performing after costs for investors.”
Consolidation after the RDR
“One thing we do expect is for distribution channels to consolidate after the RDR. The regulatory pressures will help the bigger, better capitalised companies. There will be consolidation in the asset management area, with more fund closures and mergers. Size is a consideration but it is more about quality.”