The Jupiter Global Fund - Jupiter Asset Management

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the jupiter global fund Jupiter North American Equities ■■Jupiter North American Equities Schedule of Investments as at 30 September 2012 (continued) Quantity Description Fair Value US$ Fair Value as a Percentage of Net Assets % Transferable securities and money market instruments admitted to an official exchange listing United States of America continued 6,718 Prudential Financial 368,247 0.57 5,703 Raytheon 328,179 0.51 30,784 Republic Services 841,173 1.30 7,120 Schlumberger 521,576 0.81 51,183 Sprint 286,369 0.44 19,080 SunTrust Banks 539,487 0.83 5,595 Time Warner 253,929 0.39 18,035 Travelers 1,233,684 1.91 24,677 Walmart Stores 1,825,481 2.83 11,854 Waters 996,981 1.54 40,125 Wells Fargo & Co. 1,394,143 2.16 4,980 Yum Brands 336,822 0.52 Total Equities 59,604,852 92.25 Bonds United States of America 702,975 1.09 630,000 Level 3 Financing 10% 01/02/2018 702,975 1.09 Total Bonds 702,975 1.09 Total transferable securities and money market instruments admitted to an official stock exchange listing 60,307,827 93.34 Other Net Liabilities 4,304,511 6.66 Net Assets 64,612,338 100.00 The accompanying notes form an integral part of these financial statements. 74
the jupiter global fund Jupiter China Sustainable Growth ■■Jupiter China Sustainable Growth Review of Portfolio as at 30 September 2012 Performance NAV 30.09.12 30.09.11 % Change Class L US Dollar Shares USD 7.25 USD 6.21 16.75% Class L Euro Shares EUR 7.48 EUR 6.11 22.42% Class L Sterling Shares GBP 7.24 GBP 6.48 11.73% Market Review For most of the year under review, Chinese equities continued to see a two-speed market whereby a small number of large-cap dividend paying stocks became increasingly overvalued as investors sought protection from slowing earnings growth. Meanwhile, mid and smallcap growth stocks fell and are now trading at around their lowest valuations in the last 10 years. China’s pace of economic growth clearly slowed over the course of the period, in response to various policy brakes applied by the authorities to curb rising inflation. Having seen small and mid-sized enterprises struggle to meet working capital requirements as credit was drained from the financial system, the People’s Bank of China began to reverse its monetary policy in November 2011. The central bank has reduced the amount that it requires banks to hold in reserve, encouraged loan origination and cut policy interest rates twice since then. While it is tricky to predict when the Chinese economy may reach inflection point, evidence suggests that monetary and fiscal stimulus measures are producing some effect. In addition, consumer activity has remained resilient with retail sales rising by a real rate of 11.4% during the first eight months of 2012, compared to 11.3% over the same period of 2011. Policy Review Over the year to 30 September 2012, the Fund returned 16.8% in US dollar terms, compared to 8.0% for its peer group, the FO Equity China, and 21.4% for its benchmark, the MSCI ZhongHua index. The Fund’s performance was adversely affected by investors’ risk aversion and flight to the perceived safety of large-cap stocks. Our underweight stance in large-caps, especially in the financial sector, detracted from performance. In line with our investment strategy, we did not hold large Hong Kong property developers such as Cheung Kong and Sun Hung Kai and banks including Bank of China which outperformed during the period. Although our overweight stance in the mid and small-cap sectors was detrimental for performance, good stock selection among them offset the negative impact of the asset allocation. In particular, some of the portfolio’s resources and industrial holdings made strong contributions to performance. Environmental protection company China Everbright International, gas distributor China Gas, Hollysys Automation Technologies, China Oil & Gas, ERA Mining Machinery and railway trains maker CSR all added value. Among our technology holdings, AAC Technologies, a supplier of acoustic components for smart phones and tablet PCs, outperformed on the back of strong earnings results. In terms of transactions, we locked in profits in resources and industrial shares that had performed strongly. These included China Gas, China Oil & Gas, ERA Mining Machinery and CSR. As the year progressed, we reduced our underweight stance in the financial sector, acquiring selected stocks that we believe will benefit from China’s looser monetary policy and stimulus measures. We initiated positions in Hang Lung Properties and China Construction Bank. Outlook The recent results season brought some better news, with profit margins delivering positive surprises thanks to falling input prices. Against the weak economic backdrop, this trend is expected to continue as inflation remains muted. Meanwhile, consensus GDP figures continue to fall followed inevitably by cuts in analysts’ earnings forecasts. Much of this, however, appears to be already reflected in share prices. We expect a modest recovery in economic growth over the balance of the year. With the manufacturing purchasing managers index showing some improvement, we expect to see a pick-up in output in the fourth quarter against a continuing backdrop of benign inflation. The 18th Party Congress is scheduled to commence on the 8th of November after which we will start getting more clarity as to the make-up of the next ruling elite and any refining of their policies. Coinciding with this important period of leadership change, we expect the Chinese authorities to ease their monetary policy further and introduce more stimulus measures. We expect the recent polarisation of the market in favour of large-cap stocks to reverse sharply when the macro backdrop begins to improve. Philip Ehrmann 30 October 2012 75
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