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ACTIVE FUND MANAGEMENT

On the planet to perform

ON THE PLANET TO PERFORM


ACTIVE MANAGEMENT


ACTIVE FUND MANAGEMENT




ACTIVE MANAGEMENT


An introduction

J U P I T E R M E R L I N P O R T F O L I O S

The investment challenge

In a world of ever-increasing choices, spotting the best opportunities and avoiding the biggest risks is not getting easier.

There are nearly 45,000 companies¹ listed on stock markets across the globe. That’s a lot to choose from before you even start to consider other investments such as property, bonds and a fast-growing variety of alternative investments. The task can be made simpler by choosing to invest in funds, where an expert investor selects investments for you, but even then the choice can be bewildering: there are more than 2,000 funds² registered in the UK alone.

The challenge is how to make sense of all these opportunities and choose what’s right for you.

Introducing the Jupiter Independent Funds team

Jupiter was founded in 1985 and since then we’ve been managing money on behalf of our clients, seeking to deliver attractive returns over the long term.

Around the turn of the millennium Jupiter recognised that, for many investors, the huge amount of investment choices was making it difficult for individual investors to select a high quality, diverse and well-balanced mix of funds.

So in 2001 Jupiter recruited John Chatfeild-Roberts and Algy Smith-Maxwell, along with their existing range of portfolios, for our clients. John and Algy had been successfully researching and selecting funds, picking those they considered to be the best and building them into diversified portfolios at Lazard Asset Management since 1997 and their strong track record has continued with the Jupiter Merlin Portfolios.

John continues to lead the team today, working closely alongside Algy, and over the years Jupiter has added further expertise to the team by recruiting Amanda Sillars, David Lewis and Alastair Irvine. Together this stable and highly experienced team brings their own individual strengths, skills and passions to the research and management of our range of Jupiter Merlin Portfolios.

This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. We recommend you discuss any investment decisions with a financial adviser, particularly if you are unsure whether an investment is suitable as Jupiter is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.Source: ¹World Federation of Exchanges. ²Financial Conduct Authority.

JUPITER MERLIN PORTFOLIOS

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John Chatfeild-Roberts, Head of Strategy, Independent Funds

John has been analysing and investing in funds professionally for over 20 years. After graduating from Durham University with a degree in Economics, John’s early career was spent serving in the British Army both in the UK and abroad. John started his fund management career at Henderson and also worked at Lazard Asset Management before joining Jupiter in 2001. During his time at Jupiter, John has served as both a Jupiter board Director and Chief Investment Officer, although now he is entirely focused on managing the Jupiter Merlin Portfolios.

John is married to Doone and they have two children, Tom and Harry. Home is in Stilton cheese country, where John spends his spare time with family walking and riding in the countryside and, in the summer, playing cricket.

MEETING THE TEAM

Algy Smith-Maxwell

Amanda Sillars

David Lewis

Alastair Irvine

John Chatfeild-Roberts

Algy Smith-Maxwell, Fund Manager, Independent Funds

Algy is a highly experienced investor and has worked alongside John Chatfeild-Roberts for many years. He joined Jupiter in 2001 when the multi-manager team at Lazard was acquired, since which time Algy has

played a key role in the success of the Jupiter Merlin Portfolios.

Algy started his career in 1995 as a fund analyst for Henderson, before becoming a fund manager for Lazard Asset Management in 1999. Away from the office he is a keen horse rider, primarily for recreation but he has also taken part in equestrian competitions.

David Lewis, Fund Manager, Independent Funds

David has worked at Jupiter since 2008, initially in the Private Client & Charities Team as a portfolio assistant and later as an assistant fund manager. In May 2011, David joined the Jupiter Independent Funds team.

David enjoys sport and particularly golf, squash, surfing and skiing. He is also a runner, having completed five marathons. He has also developed a passion for visiting art galleries and is learning French, both of which are inspired by his wife, who is Swiss French and loves art.

Amanda Sillars, Fund Manager, Independent Funds

Amanda joined the Jupiter Independent Funds team in 2011 from JPMorgan Asset Management where she was Investment Director covering institutional equities and multi-asset funds. She also led the Corporate

Governance team for Emerging Markets, Europe and Asia (EMEA). Prior to this, Amanda spent ten years as a fund manager and analyst. Amanda is also busy at home, where she is kept on her toes by her husband and three teenagers. She is a governor at the Drapers’ Academy and a keen sailor during the summer season.

Alastair Irvine, Product Specialist, Independent Funds

Before joining Jupiter, Alastair began his career in 1985 with stockbroker Laurie, Milbank & Co. After more than 20 years in equity research, including as Deputy Head of equity research for Europe, Middle East and Africa at Merrill Lynch, Alastair joined Jupiter

in 2015. He is the Product Specialist in the Jupiter Independent Funds team.

Out of the office, Alastair acts as a willing, albeit unpaid, taxi driver for his childrens’ sporting and social engagements. He is also involved with the RAF, and since 2012 has been a trustee of the Royal Air Force Benevolent Fund.

The Jupiter Independent Funds team has a number of core values that helps shape their investment philosophy and approach to wealth management.

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It is important to invest

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SIX INVESTMENT PRINCIPLES

Real investment returns by asset class (% per annum)

2017 10 years 20 years 50 years 118 years*

Shares 8.4 3.2 3.2 5.6 5.1

UK Government bonds (gilts) -1.9 4.0 3.6 3.1 1.3

Corporate bonds 0.7 3.6

Cash -3.9 -1.9 0.3 1.2 0.7

Note: * Entire sample. Source: Barclays Research Barclays Gilt Study 2018, for time periods to 31/12/2017.

As you can see, being invested in cash puts wealth most at risk of being eroded by inflation. This is especially true at the moment, when interest rates in the UK are close to the lowest they have been since records began in 1694*. So despite the many advantages of having some

money saved in cash it is clear that, for those who want to grow their wealth faster than inflation over the long term, allocating some money to investment markets is a sound strategy. *Source: Bank of England

Invest with experts

First and foremost the team believes that it is important to invest over the medium to longer term in order to both mitigate the effects of inflation reducing the value of wealth and also to grow that wealth.

This is illustrated by the chart below, which shows the return of various types of investment over long time periods. This is the real return, which means it takes into account the effects of inflation, which gives a precise view of how the actual spending power of someone’s investment has grown over time.

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2 If you are feeling under the weather then you would likely go to see a doctor, and if you want to build an extension to your home you presumably make an appointment with an architect. The thought of seeking help on both matters from one doctor-cum-architect probably doesn’t sound very appealing. In professional fields there are clear benefits to seeking the assistance of specialists, and the Jupiter Independent Funds team applies the same principle when selecting fund managers.

The fund managers who run the funds within the Jupiter Merlin Portfolios are experienced specialists in their fields. The world of investing is very large and one person can’t be good at everything, but that’s OK because the Jupiter Independent Funds team only needs them to excel in their area. So the team seeks out experts in managing UK shares, Japanese shares, or global bonds for example, as needed and blends these together into five different portfolios each with a different objective. The portfolios range from the cautious, UK-biased Jupiter Merlin Conservative Portfolio to the most adventurous Jupiter Merlin Worldwide Portfolio which invests in shares across the globe.

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People make a difference

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Findlay Park American Fund Russell 1000 Total Return

The Jupiter Independent Funds team believes that with deep and thorough research, high quality fund managers can make a difference and deliver better returns for their investors than lower-cost passive funds, such as Exchange Traded Funds (ETFs), after fees over the long term.

Passive funds typically use algorithms rather than human expertise to buy the whole market in the form of an index, for example the FTSE 100 Index, because these funds are trying to produce a return that only matches that of the market. That means they are invested in everything – the good, the bad and the ugly.

Active fund managers, on the other hand, apply their expertise and intuition with the aim of investing in only the most promising investments in the market. Nobody will be right 100% of the time, of course, but the skill of fund managers with the ambition and ability to generate the best returns can make a big difference over the long term.

The chart below illustrates the return profile of an active fund manager, whose fund has long been a part of the Jupiter Merlin Portfolios. Through skill and judgement, the fund manager has been able to deliver superior returns after fees.

Past performance is no guide to the future. Source: Morningstar, bid to bid, net income reinvested in USD, to 31.03.2018.

Rolling 12-month performance (%)

2017-2018 2016-2017 2015-2016 2014-2015 2013-2014

Findlay Park American Fund 4.5 29.7 5.1 26.5 6.2

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Findlay Park American Fund returns since inception, after fees

Findlay Park itself was founded in 1998 by James Findlay and Charles Park, although John Chatfeild-Roberts has been investing in funds managed by James since before then and knows his philosophy well. The 11-strong team does not restrict itself by company, size or sector. It avoids taking extreme risks and has a dominant focus

on preserving capital when markets fall. It is also an example of the kind of fund that is only accessible through a multi-manager portfolio such as the Jupiter Merlin Portfolios, as the fund has been closed to new investors since 2000.

Past performance is no guide to the future. Source: Bloomberg, internally produced by Findlay Park Partners to 31.03.2018. Inception date: 06.03.1998 *The compound annual growth rate (CAGR) is the average annual growth rate of an investment over a specified period of time longer than one year.

Fund and index performance (%)

1 Year CAGR* since fund inception

FP American Fund (USD Class) 17.2 12.6

Russel 1000 Net 30% total return 13.3 6.3

S&P 500 Net 30% total return 13.3 6.1

Russel 2000 Net 30% total return 11.4 7.2

Past performance is no guide to the future. Source: Morningstar, bid to bid, net income reinvested in USD. Inception date: 06.03.1998 to 31.03.18.

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Don’t put all your eggs in one basket - diversify

5 We’re all familiar with the old adage about not putting all your eggs in one basket, and that is certainly true when it comes to investing. The area that has been the

best performing one year could easily be one of the worst performing the following year – as illustrated by the chart below.

Market and currency movements can cause the value of an investment to fall as well as rise and you may get back less than originally invested.

Given this unpredictable situation, a sensible approach is to diversify and have a variety of different types of investments. That could mean investing in both shares and bonds, for example, or having investments

exposed to different countries and regions of the world. This is what the Jupiter Independent Funds team seeks to achieve, within the investment objectives of the different portfolios they manage. Their task is to choose an appropriate investment mix and then select what they regard as the best funds in the different categories to build a portfolio that can outperform over the long term.

Asset class returns over 15 years (%)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

45.6 16.2 35.8 27.9 33.5 45.1 62.3 15.9 6.4 17.0 25.0 13.3 5.5 29.0 30.6

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20.9 12.8 23.0 16.8 7.7 6.5 30.1 14.5 6.0 13.9 20.8 12.1 2.5 21.8 13.1

20.3 7.5 22.0 5.8 7.6 -13.9 16.4 14.1 0.8 12.3 3.4 6.8 1.0 16.8 12.4

7.4 6.9 8.9 4.8 6.0 -17.4 11.9 9.1 -3.5 11.4 0.7 5.2 0.5 12.9 4.8

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3.8 4.6 6.8 0.5 5.3 -29.9 1.8 8.9 -4.3 1.0 0.5 1.2 0.6 9.7 0.3

1.2 1.9 4.9 -6.5 0.1 -45.9 -4.8 0.7 -12.7 -0.3 -4.4 0.5 -5.8 0.6 -1.9

Global Shares Emerging Market Shares Global Bonds UK Shares

UK Bonds Cash

The performance percentages shown are for illustration purposes only. Past performance is not a guide to future performance. Source: Morningstar, data as at 31/12/2017. Percentage growth, total return in GBP. Discrete calendar years shown. The performance of each of the asset classes are represented as follows: Global shares are MSCI World GR; Emerging market shares are MSCI Emerging Markets NR local currency; Global bonds are Bloomberg Barclays Global Aggregate TR; UK Shares are FTSE All Share TR; UK bonds are Bloomberg Barclays Sterling Agg A TR; Cash is ICE LIBOR 3 Month.

For professional and amateur investors alike, there has never been more choice. Some new funds have introduced ever more complex financial instruments, but there is no reason that greater complexity should lead to better investment returns, indeed arguably the opposite.

The Jupiter Independent Funds team recognises the value of keeping their investment strategy straightforward; they want to invest in funds that are simple and understandable so that Jupiter Merlin clients can understand exactly what they own.

4Keep things simple

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What an incredible difference just 20 days can make over ten years! That’s one of the reasons why the Jupiter Independent Funds team invests with a cool head. They attempt to resist the human urges for excessive panic or enthusiasm and trust in their investment principles and the skills of the fund managers they have selected for the portfolio, to deliver superior returns over the long term.

Naturally, investing involves risks. Market and currency movements can cause the value of an investment to go up or down and in the worst case you may lose your invested money. You should consult a financial adviser if you are unsure if an investment is right for you. Jupiter is not able to provide investment advice.

Charges for the Jupiter Merlin Portfolios tend to be higher than for non-multi-manager Unit Trusts, as a portion of the charges are applicable to the underlying funds. For the Jupiter Merlin Income Portfolio, Jupiter Merlin Balanced Portfolio and Jupiter Merlin Conservative Portfolio, all of the portfolios’ expenses are charged to capital, which can reduce the potential for capital growth. This is to preserve the income generated from these portfolios. For the Jupiter Merlin Growth and Jupiter Merlin Worldwide Portfolios, expenses are charged to income only because these portfolios aim to generate capital growth rather than

Be patient

0%

25%

50%

75%

100%

125%

Jupiter Merlin Worldwide PortfolioJupiter Merlin Growth PortfolioJupiter Merlin Balanced PortfolioJupiter Merlin Income Portfolio

28%

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110%122%

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117%10 years performance without ‘best’ 20 days10 years performance

Proper wealth management is a long-term endeavour. It is very much a marathon, not a sprint and though it is often tempting for investors to get distracted by a sudden surge or crash in the market, having patience is absolutely vital.

Keeping a check on one’s emotions is an important discipline to have, particularly in more challenging investing environments. For example, markets can move up or down but one thing they almost never do is move in a smooth line. Prices for individual investments, or even whole markets, can move suddenly. Some of the worst days in the market

might come during a period of generally rising prices and some of the best days can come shortly after a sharp fall.

There is a saying in investing that ‘time in the market is better than timing the market’, meaning that rather than trying to guess whether the market will rise or fall tomorrow, the best plan is just to be patient and stay invested.

As an illustration, the chart below shows the potential effect on returns if an investor had, through poor decisions or simply bad luck, missed out on the 20 best days in the market over a ten-year period.

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Impact of missing 20 ‘best’ days on 10-year performance

Past performance is no guide to the future. Fund performance data is calculated on a NAV to NAV or bid to NAV dependent on the period of reporting, all performance is net of fees with net income reinvested in GBP. Source: FE 31.03.2018

income. Please make sure you read the NURS Key Investor Information Document, Supplementary Information Document and Scheme Particulars which are available from Jupiter on request. These portfolios can invest more than 35% of their value in securities issued or guaranteed by an EEA state.

In conclusion‘Simple’ and ‘easy’ are not the same thing, so although the Jupiter Independent Funds team’s philosophy might sound simple – invest for the long term in a diverse selection of funds managed by high quality, active fund managers – being able to beat the market is far from easy.

The team is proud of the long-term track record of the Jupiter Merlin Portfolios, but inevitably some years are better than others. Markets sometimes move suddenly and in unexpected ways, but in times of crisis it is the value of what Leo Tolstoy called “the two most powerful warriors” – patience and time – that characterise the way in which the Jupiter Merlin Portfolios are managed. We believe the consistency of personnel and investment approach of the Jupiter Independent Funds team – and the expert fund managers in which they invest client savings – should continue to serve clients well in decades to come.

Rolling 12-month performance (%)

2017-2018 2016-2017 2015-2016 2014-2015 2013-2014

Jupiter Merlin Balanced Portfolio 2.6 18.7 -0.4 14.2 2.4

Jupiter Merlin Growth Portfolio 1.3 21.6 -2.0 17.3 3.4

Jupiter Merlin Income Portfolio 0.6 13.4 -3.1 7.8 0.8

Jupiter Merlin Worldwide Portfolio 1.9 24.5 -3.8 20.1 -1.3

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Important Information: This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. If you are unsure of the suitability of an investment please contact your financial adviser. We recommend you discuss any investment decisions with a financial adviser, particularly if you are unsure whether an investment is suitable as Jupiter is unable to provide investment advice. Past performance is no guide to the future.

The views expressed are those of the author at the time of writing and may change in the future. This is particularly true during periods of rapidly changing market circumstances. Any data or views given should not be construed as investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.

Jupiter is not permitted to provide tax advice. This is written based on our understanding of current tax laws and may be subject to change.

Jupiter Unit Trust Managers Limited (JUTM) is authorised and regulated by the Financial Conduct Authority. Registered address is The Zig Zag Building, 70 Victoria Street, London SW1E 6SQ.

No part of this document may be reproduced in any manner without the prior permission of JUTM and/or JAM.

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