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Jupiter’s Gibbs: “The name of the game is recovery”

Valuations in financials are compelling, with stocks in the sector having fallen 50 per cent from their peak and poised to benefit from global economic recovery, says Jupiter’s Philip Gibbs.

“It is difficult to be extremely negative on valuation grounds and it has been for quite a few years,” he says. “Banks and general financials are accounting for most of the fall in markets—they are below half what they were.”

Gibbs is bullish on the opportunities available in equity markets, and says the financial sector in particular is well placed to benefit from recovery.

“There has been an extraordinary dip down in what you get from investing in an equity versus what you get from investing in a bond. Equities are twice as cheap relative to bonds,” he says.

“The question is, do we believe the earnings are where they are supposed to be? They may be better than the market expects because of the drive from cash into property and other assets.”

Gibbs says the economy is benefiting from low interest rates and other forms of stimulus. “Interest rates will remain low for some time, and the economy is responding. The financial sector is geared to that as people push into assets—it will be a major beneficiary of this situation.

“Is it a bed of roses forever? I’m not sure it is. We are relying on stimulus.

“I personally believe the world economy is picking up. There is lots of evidence of this, such as US employment figures. There are dangers there, but I don’t believe western economies will be strong for some years to come because of the accumulated debt mountain. I believe the name of the game is recovery, which is contrary to popular belief.”

Meanwhile Gibbs has revealed further details of his forthcoming funds, Absolute Return and International Financials, which will launch on December 14.

Absolute return is a mirror of the manager’s existing Hyde Park hedge fund strategy, while international financials mirrors the global financials Sicav. Both of the existing portfolios are domiciled offshore, which Gibbs says has made them less interesting to Jupiter’s core client base. By launching onshore versions, the group hopes to attract more assets to the funds.

The Absolute return fund will differ from the hedge fund in that it will take a more cautious stance to lower volatility. Its Ucits III structure also means it will not be able to have more than 10 per cent in any one stock, it will not be more than 50 per cent gross market exposed, and it will not be more than 60 per cent long or short in equities. It will have a value at risk limit, which will estimate the maximum potential loss the portfolio, to prevent it from falling more than it’s 20 per cent limit in 20 days.

Gibbs says: “The fund will be fully unconstrained in terms of what we can invest in; it won’t be just financials. We will be dealing in corporate and government bonds. At the moment, in the hedge fund, we have lots in corporate bonds—you can get 8 per cent to 10 per cent yields on some corporate bonds. We can have a lot of cash on the balance sheet, so it seems silly to get no return on that.”

The fund is likely to have some exposure to the resources sector, he adds.

Looking at current market exposure on Hyde Park, Gibbs says: “Until 2007 we were net long on the hedge fund. Luckily, early on I saw that markets would be weak because of the property collapse in the west, so I took out exposure early. But market volatility makes it hard to be net short.”

The international financials fund, meanwhile, will be differentiated from its counterpart unit trust by virtue of its smaller size, which will allow Gibbs to deal in smaller-cap companies.

The investment process will see Gibbs using macroeconomic themes as a starting point, then selecting individual stocks. “It is not just a buy and hold strategy I have been running. I am not afraid to trade out of things when they reach fair value,” he says.

The financial opportunities fund, which will see Guy de Blonay come to the helm as co-manager in six months, is now fully invested in financials, with a slant towards the Far East through holdings such as HSBC and Prudential. Gibbs also likes investment banks such as Barclays, Credit Suisse and Goldmans, many of which have benefited from the demise of their competitors.


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