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Highs and flows

Jupiter income manager Tony Nutt tell Chris Salih how his preference for reliable assets has kept returns flowing on his fund

Jupiter’s £4.2bn flagship income trust celebrated its 20th anniversary last month, having long been a favourite in the IFA community.

The fund has produced top-drawer returns in varying economic climates and is ranked top of the UK equity income sector from its launch in August 1987 to date.

The bulk of its returns are largely down to the expertise of two men – William Littlewood, who made a number of shrewd moves in growing the fund from £20m to £1.5bn during his tenure, and Tony Nutt who has taken the fund to £4.2bn since taking over in 2000.

Littlewood’s strategies included moving the fund to “old economy” shares in the late 1990s – a defensive move that bore fruit when the technology bubble burst at the turn of the century.

His period on the fund came to an end on health grounds, when doctors advised him to make his three-month sabbatical from chronic fatigue a permanent move.

Jupiter chose Nutt to replace him in 2000 but while he had worked closely with Littlewood since 1996 and produced a top-ranked fund in the high-income sector, the IFA community was cautious.

Nutt says: “It was a strange situation as people continued to overlook the fact that I had been there since 1996 on the high-income vehicle and I knew all the positions in the portfolio. It was almost a case of just walking across the office.”

The fund has produced a return of 1,064 per cent since launch and 103 per cent over the last five years.

Nutt is an absolute-return manager who adopts a stance towards growth-orientated companies rather than those offering the highest-yielding stocks in the market. He says getting under the skin of a company and pinpointing how it makes money is the key to repeated success.

Taking over on the eve of the technology bubble bursting, Nutt was faced with a couple of days of frenetic trading but it was not the baptism of fire that many expected.

He says: “What killed technology was a Barrons article on March 13, 2000, which listed some 500 technology companies whose cash burn was of the like that no one had ever seen in the past and the market realised it had to refinance this and it would cost billions, considering the ratings they were on.

“However, frenetic trading is not something I engage in and, having seen bulls and bears before, I was sanguine about the situation. A portfolio is something that changes over time and fear is often the worst thing for a fund.”

Nutt’s response was to build on what Littlewood had put in place already by investing in solid and reliable assets, such as housebuilders, which tend to provide steady flows of cash.

He says: “Between March 2000 and 2003, the decline was really about shaking out the excessive valuations in the telecoms, media and internet sectors and that has only come to an end in the past 12 months because of more pressing issues, which in this case was the mispricing of risk as people chased yield at a time when interest rates were falling.”

Nutt says he has had made a number of calls during his time on the fund of which he is particularly proud. “We have done very well out of some IPOs while staying out of pharmaceuticals and being early in mining has served us extremely well over the past decade. Taking O2 and P&O out on the same day was also good.”

Nutt’s decision to pull out of mining early has hit performance this year, with the portfolio returning a loss of 2.07 per cent compared with a 4 per cent rise in the FTSE All Share index.

He says he took the decision based on the FTSE 100 falling by 9.4 per cent in just nine days over the May 2006 correction but, despite the rebound, he is confident he made the right decision as he says it is always better to sell early than late.

Nutt says: “The top five mining stocks have buoyed the FTSE100’s performance but their costs are rising sharply and although it is still possible to sell lower-quality ore profitably, it will be a harder process to reverse when commodity prices fall. There is little room for failure in areas like copper, where I can recall one company recently missing its forecasts by some 40 per cent.”

Believing that a super-cycle for mining has been priced in, Nutt says issues with mining are beginning to be brought to the surface as a result of the latest shake-up.

“The last mining stock I sold was Lonmin at £43. It has since dropped some 30 per cent to £31.”

Nutt is cautious over the outcome of the current credit crunch and says there will be no quick answers due to a silting up of major proportions.

“We are in a long-term bear market for credit. There is some $400bn of issuance out there, $700m of which is sub-prime. The one good thing is these debts are in the short term,” he says.

Nutt says he is happy with life at Jupiter, particularly as the recent MBO has made the business even more attractive on the fund management side of the fence.

“We are building a mass of talent on the fund management side in order to offer some sort of succession management that will ensure the long-term future of Jupiter. I cannot see why I would not be here for the 30th anniversary of this fund but, if I am not, there will be someone ready and able to take up the reins behind me.”


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