Jupiter’s multi-manager team has reduced its cash position to less than 5% across all four onshore portfolios and is preparing to move into small caps.
John Chatfeild-Roberts and Algy Smith-Maxwell, the lead managers, say they are on the verge of deploying the assets into British smaller companies. They have also moved money into Asia, Latin America and corporate bonds.
In a conference call for investors held last week, Smith-Maxwell said the £2.3 billion Merlin fund range now has cash positions of between 3% and 5% across the board. The managers have historically used high cash positions as part of their investment strategy, sometimes retaining up to 20% of the funds in cash when markets were falling.
Smith-Maxwell said: “We have significantly increased our exposure to Asia and have reinstated Latin America exposure in the portfolios. These are two geographical regions we think will be long-term beneficiaries of a cyclical downturn.
“In the UK, small caps also look quite attractive. We haven’t done anything about that yet in our portfolios but we do think small-cap valuations for the long-term investor look pretty appealing,” he added.
Merlin Growth had a strong bias towards British small caps in 2007 but the managers had completely sold out of the asset class by 2008.
The managers’ renewed optimism on fixed income is a departure from their strategy over the last few months, in which performance was driven by avoiding the ‘liquidity traps’ of corporate bonds, property and private equity.
Smith-Maxwell said: “We believe corporate bonds are a very good place to be right now, especially in investment grade and some high yield. People are being paid handsomely for owning these assets. We have significantly increased our exposure to this area.”
Looking to the outlook for the domestic economy, the manager warned the corporate environment will remain tough, as companies struggle through what he calls ‘a balance sheet recession’.
“I am expecting a tsunami of rights issues to hit the UK market, which may well be comparable to the dividends being paid out by UK companies this year,” he said.
He also expects inflation to be an ongoing theme in the future. “Inflation is a one hundred percent certainty. It may be very hard to contain but I do think it is tomorrow’s problem,” he said.