The Jupiter Global Fund - Jupiter Asset Management

the jupiter global fund
Jupiter Europa
■■Jupiter Europa* Review of Portfolio as at 30 September 2012
Performance
NAV 30.09.12 30.09.11 % Change
Class L Euro A Shares EUR 10.53 EUR 9.50 10.84%
Class L Euro B Shares EUR 10.58 EUR 9.59 10.32%
Class L Sterling B Shares GBP 10.74 GBP 9.71 10.61%
Class L US Dollar B Shares USD 10.76 USD 10.00* 7.60%
* Inception date of 2 November 2011
Market Review
In the year under review, the eurozone crisis and slower global growth
continued to dominate market sentiment. Following expectations that
Greece could leave the euro, the European Central Bank (ECB)
stepped in where governments feared to tread and said it would do
whatever was necessary to keep the currency union together. Markets
rallied over the period on this and further quantitative easing from the
US Federal Reserve, the Bank of England and the Bank of Japan.
Despite this, there were periods of heightened volatility and company
results were mixed as China continued to slow and growth elsewhere
such as the US was insufficient to compensate.
Policy Review
As of October 2011, the Jupiter Europa Hedge Fund Limited was
rolled into the Fund, which was subsequently re-named Jupiter
Europa. The weights and some of the names comprising the Fund’s
top long holdings shifted accordingly and represent the manager’s
highest conviction selections. Characteristically, these companies
offer some combination of earnings quality, compounding growth,
unique niche positioning, a defensive nature or restructuring potential.
The Fund began the year with just 20% of the portfolio in long positions.
This reflected the highly uncertain macroeconomic environment and a
window of opportunity for individual stock shorts. However, as the year
progressed, the net position was actively managed in response to the
frequent changes in the outlook, which contributed to performance. In
particular, the flexibility and rapid implementation of index option
strategies meant that adequate protection could be effected without
forced selling of conviction long positions or over-concentration in
individual short stock positions.
On the long side, contributors to the Fund this year included some
long-held positions and more recent holdings. In the former category
were: NovoNordisk, Syngenta, Intertek, Azimut and Admiral. The
single most significant contributor, NovoNordisk, has maintained its
dominant position in the rapidly growing diabetes care market and has
a strong pipeline of ever improving products. In the latter category
were cable operators Ziggo and Kabel Deutschland, residential
property company TAG Immobilien AG and software company
Gemalto. In the case of TAG Immobilien, knowledge of the company
over a long period of time, good communication with management and
solid sector drivers in Germany led to a successful relative over-weight
to this smaller-capitalisation investment.
On the short side, positions established based on our view of their
domestic markets at the beginning of the year in utilities,
telecommunications and the industrial and consumer sectors largely
paid off, though many cyclical shorts ultimately dragged on
performance in absolute terms. Top short contributors included utilities
A2A and Iberdrola and telecoms companies Telefonica and Bouygues.
Several short positions were closed including Nokia, which was taken
on the basis of an untenable business model. However, some short
positions such as Electrolux, despite having in our view a weak
long-term competitive outlook, benefited from significant cyclical
re-rating over the year.
The combination of attractive core long positions, shorting opportunities
and responsive management of net positions is reflected in the
performance for the year of 10.3% compared to 0.9% for the
benchmark, the 3-month Euribor.
Investment Outlook
Developments in peripheral Europe’s sovereign debt crisis are likely to
remain the critical factor driving European markets. With the ECB’s
formal backstop and approval of the rescue Fund by the German
constitutional court, the building blocks for combating the eurozone
crisis may have already been laid. However, real risks remain. In
particular the backlash against austerity is becoming ever more
strident, possibly limiting further reform efforts and their effectiveness
especially with regard to national bailouts.
Despite the current political and technical difficulties faced by all sides
over the exact terms of bailouts, we expect the next few months to be
a window of opportunity to resolve the issue. In this event, we also
anticipate a positive market reaction, possibly sustained by investors
that have remained on the side-lines so far. Greece’s enormous debt,
collapsing economy and political instability could reignite fears of euro
exit, but near-term we expect concessions and trade-offs to maintain
the unstable status-quo.
Growth prospects are a concern for equities, which have proved
resilient overall so far. Given that improvements in credit, sentiment
and demand will lag our assumed structural improvements, the extent
to which companies are affected so far could begin to manifest itself in
the latest company results.
Stephen Pearson and Michael Buhl-Nielsen
30 October 2012
*As at 18 October 2011, the name of the Fund was changed from Jupiter
European Absolute Return to Jupiter Europa.
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