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Mark Dampier: Jupiter UK Growth has down well investing in ‘uninvestable’ companies

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I wrote about the Jupiter UK Growth fund for this publication last summer, just after Ian McVeigh celebrated his 10th anniversary as manager. Following a meeting with McVeigh and co-manager Steve Davies last week, it is worthy of another update.

The fund has a strong long-term record, having grown by 184 per cent over the past 10 years compared with 126 per cent for the FTSE All Share index. Broadly, the managers invest in two types of company: those undergoing a recovery and those they believe are capable of strong growth. The former tend to be companies written off by other investors, which immediately attracts the pair’s attention, while growth companies are those they believe have a strong franchise which is not being factored in to the company’s share price.

The managers are unafraid to back their favourite stocks with conviction and over 90 per cent of the portfolio is invested in just 30 firms. This means each holding has the potential to contribute greatly to performance but it can make the fund more volatile.

Two-year price targets are set for each stock to promote discipline. When the target is reached, it is a signal to review the company and decide if the strong run can continue.

Recovery stocks include Dixons, a notable success. Many thought it was for the scrapheap but the recession saw off competitors such as Comet, enabling Dixons to increase its market share. The share price has more than trebled since first purchased around three years ago.

The fund’s hefty exposure to the UK banking sector has also worked well of late. Lloyds, now the fund’s largest position, was purchased in 2010. Initially this proved painful but the managers took advantage of share price weakness to increase their exposure and this has paid off, with sentiment towards Lloyds markedly improved. 

Growth companies tend to be those the managers believe can grow sales at least in line with nominal GDP over a three-year period. They also like reasonably valued, cash-generative companies which have the ability to increase prices without seeing a subsequent drop in demand for their product or service.

The managers suggest most analysts focus too much on predicted earnings. This often misses the momentum of many growth companies beyond a one-year horizon.

Growth stocks held in the portfolio include Experian, which McVeigh says has massive barriers to entry, and BMW, which is listed overseas.

Around 9 per cent of the portfolio is held in cash. McVeigh believes valuations are less compelling than in early 2012 and, like me, felt there was too much optimism at the start of 2014. The cash enables them to pounce when opportunities arise.

This fund is likely to suit long-term investors seeking a concentrated portfolio. Performance will differ markedly from the stockmarket at times but it is a genuine stockpicking fund and has been consistently under-rated under McVeigh and Davies’ management.

Mark Dampier is head of research at Hargreaves Lansdown

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