Jupiter income has recently celebrated its 20th birthday. It has had just four managers over this time, if you count the caretaker manager between January and April 2000. The fund really hit the headlines after William Littlewood took it over in December 1990.
Its performance was way above any other equity income fund and considerably better than most UK growth funds, too. However, at the end of December 1999, ill-health unfortunately caused Littlewood to step down.
I remember meeting him that month and he said Vodafone, then around £4, was going to fall dramatically over the next two or three years. Of course, he was proved correct. Littlewood’s loss was clearly a great loss to Jupiter and it caused quite a commotion among intermediaries.
Many brokers took the opportunity to recommend that their clients sell Jupiter income despite the fact that, by April 2000, Jupiter had given the job to Tony Nutt.
What was amazing was that Nutt’s performance running Jupiter high income had been almost as good in the last few years as Littlewood’s. Not only that but Nutt had also already experienced running big funds in the 1980s at Lloyds TSB.
Frankly, I thought most of the broker community lost its head or perhaps it was seduced by commission for switching. Anyway, it was the wrong decision and Nutt has taken the fund to further success. The fund size is now over £4.1bn.
The history of Jupiter income is also interesting in that it shows exactly how an income fund should be working. A client who bought the fund at launch would now be receiving a yield of over 16 per cent on their original capital. That capital would itself have grown by almost 450 per cent. No wonder equity income funds are so popular. They have the exact same objectives as most private clients – an increasing income and capital growth.
Nutt’s style is benchmark-aware but he is careful not to get sucked in to holding stocks merely because they are a big part of the benchmark. He looks for shares that can deliver strong growth as these companies will also be able to produce rising dividends. There is no point in investing just for high yield if there is no growth in that income or capital.
Nutt looks carefully at the long-term drivers of a business, in particular, the generation of free cashflow. After all, cash is the lifeblood of any company and dividends cannot be paid unless a company is generating plenty of it.
Management meetings are an important part of Nutt’s process. Some of these take place in the companies’ offices but Jupiter managers are in the fortunate position of having plenty of top companies visiting them.
The fund will typically have between 70 to 130 stocks, the actual number depending on how bullish Nutt feels. He is happy to take big positions in individual stocks but will often start with a much smaller one and increase it as his confidence in the company grows. Like many income fund managers, Nutt has been moving up the capitalisation scale.
By Nutt’s high standards, his fund has been going through a rough patch. One of the reasons for his underperformance is not so much what he has owned but what he has not. He had held mining stock for many years and made around 10 times his money in Antofagasta but his decision to sell out of the sector proved to be too early. Despite that, there were isolated successes. He sold Lonmin at £43 and it is only around £31 today.
His contrarian style can be seen in his current exposure to housebuilders and Persimmon is still one of his top holdings. With the Government committed to social housing, Nutt believes strongly that the housebuilding industry has considerably further to go.
Given the troubled times we are living in, I have always felt that an experienced fund manager who has seen market falls is where you should be investing.
Nutt is a cool individual who will keep his head while all around him are losing theirs.
The fund remains on our buy list and we hope Nutt will be staying on for a significant time yet at Jupiter.
Mark Dampier is head of research at Hargreaves Lansdown