The Jupiter Global Fund - Jupiter Asset Management

the jupiter global fund
Jupiter Strategic Total Return
■■Jupiter Strategic Total Return Review of Portfolio as at 30 September 2012
Performance
NAV 30.09.12 30.09.11 % Change
Class L US Dollar Shares USD 10.01 USD 9.90 1.11%
Class L Euro Shares EUR 10.10 EUR 9.98 1.20%
Class L Sterling Shares GBP 10.06 GBP 9.93 1.31%
Class L Swiss Franc Shares CHF 9.89 CHF 9.84 0.51%
Class I US Dollar Shares USD 10.09 USD 9.93 1.61%
Class I Euro Shares EUR 10.21 EUR 10.03 1.79%
Class I Sterling Shares GBP 10.16 GBP 9.97 1.91%
Class I Swiss Franc Shares CHF 10.00 CHF 9.90 1.01%
Performance Review
In the period to 30 September 2012, the total return for the euro class
was 1.20% compared with a return of 0.62% for its benchmark, the
Euribor 1 month TR index. The Sterling, Swiss franc and US dollar
classes’ total returns were respectively 1.31%, 0.51% and 1.11%
compared with their benchmarks.
Market Review
In the period under review, markets were caught between opposing
forces. One the one hand, the chronic inability of eurozone politicians
to address the financial problems arising from their political
Frankenstein made life unnecessarily harsher for millions of people.
Austerity, once regarded as a medicine, became the poison that
enervated the global economy. To counter this and the other
contractionary forces arising from the mass deleveraging of
commercial bank balance sheets, central banks unleashed a nearrolling
programme of unorthodox monetary policies to manipulate the
price of financial assets. However, despite renewed attempts by EU
leaders to formulate a convincing response to the sovereign debt
crisis such as installing technocratic governments in Greece and Italy,
investors continued to worry about the impact on global growth.
Investor sentiment was deeply pessimistic at the start of 2012. There
were well-founded fears that eurozone banks lacked the wherewithal
to refinance maturing sovereign debt due to be rolled-over in the
spring as several member states had lost effective access to bond
markets. Circumstances soon changed. The European Central Bank
(ECB)used its Long Term Refinancing Operation (LTRO) to offer
commercial banks unlimited cheap three-year loans in exchange for
collateral of varying quality. The yields on Italian and Spanish
sovereign debt fell sharply as banks repurchased their debt, reducing
yields and thus the cost of financing deficits. This backdoor
monetisation was intended to buy time for politicians to agree on
sensible fiscal policies but it also permitted core banks to divest
themselves of peripheral debt and repatriate capital.
The LTRO transformed a solvency crisis into a liquidity-driven rally.
Equity markets responded positively aided by supportive US economic
data and indications that China was easing fiscal policy. The UK
economy remained weak and its budget deficit high.
On 2 March 2012, all EU member states excepting the UK and the
Czech Republic, signed the Fiscal Stability Treaty as a step towards
fiscal union. This required them to run a budget that was either
balanced or in surplus. Such requirements were likely to intensify preexisting
recessionary conditions in some member states. Almost
immediately, the new government in Spain announced it would flout
these rules. Shortly afterwards it became the fourth country to require
a bailout when it was forced to nationalise 90% of Bankia, a
conglomerate of seven regional savings banks. Cyprus became the
fifth just days before it took over the rotating presidency of the EU.
A profound change in mood swept across markets over the summer
after Mario Draghi said the ECB was prepared to do whatever it took
to preserve the euro. Unlike equities, sovereign bond and currency
markets continued to react to the intensity of Europe’s problems. An
internal flight to safety saw yields for the two-year bonds of perceived
havens (Germany, Austria, Netherlands, Finland and France) turn
negative whereas debt servicing costs for Spain and Italy remained
unsustainably high.
Elsewhere in the world, central banks redoubled their efforts to boost
growth in the face of a global slowdown. In September, the ECB’s
commitment to unlimited, direct purchases of sovereign debt (subject
to conditions) and the US Federal Reserve’s move to open-ended
Quantitative Easing underpinned further gains in equities.
Policy Review
The aim of the Fund is to generate positive long-term returns across
varying market conditions. In order to help achieve this while
minimising volatility, we use a wide range of different, offsetting
strategies to respond to dynamic changes in financial markets.
In the period under review, the tendency of stock markets to switch
almost daily between ‘risk on’ and ‘risk off’ modes created much
turbulence. In order to eschew unwanted volatility we maintained our
net equity exposure at a very low level, typically around 2.5%,
preferring to gain equity exposure by holding convertible bonds since
they also offered significant downside protection. Our cautious position
in risk assets helped to protect the Fund in 2011 but also allowed it to
gain ground in early 2012 and again in late summer/early autumn. The
other reason we maintained a low equity exposure was because we
had sizable short positions in some government bonds and sovereign
debt that we considered to be extremely overvalued. There is a
positive correlation between long equity and short bonds and we
wished to avoid doubling up.
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