The Jupiter Global Fund - Jupiter Asset Management

the jupiter global fund
Jupiter Dynamic Bond
■■Jupiter Dynamic Bond Review of Portfolio as at 30 September 2012
Performance
NAV 30.09.12
Date of
Inception*
% Change
Class L US Dollar Shares USD 10.40 USD 10.00 4.00%
Class L Euro Shares EUR 10.40 EUR 10.00 4.00%
Class L Sterling Shares GBP 10.41 GBP 10.00 4.10%
Class L Swiss Franc Shares CHF 10.38 CHF 10.00 3.80%
Class I US Dollar Shares USD 10.41 USD 10.00 4.10%
Class I Euro Shares EUR 10.41 EUR 10.00 4.10%
Class I Sterling Shares GBP 10.42 GBP 10.00 4.20%
Class I Swiss Franc Shares CHF 10.39 CHF 10.00 3.90%
* Inception date of 8 May 2012
Market Review
Shortly after the Fund was launched in May 2012, the Monetary Policy
Committee voted to keep UK interest rates on hold at 0.5%, where
they have now been for the past three years. The Bank of England
commenced a further round of quantitative easing, despite already
having repurchased approximately a third of the gilt market. Markets
responded positively in June to the agreement reached by eurozone
nations to offer support to the Spanish banking sector. Spain’s woes
continued into July as yields on its government bonds rose to
seemingly unsustainable levels. Commitment from European Central
Bank (ECB) chief Mario Draghi to ‘do whatever it takes’ to preserve
the Euro temporarily assuaged investor concerns and bond market
performance improved in July. By August, it had become clear that a
further monetary policy response was likely in both the United States
and Europe, and trading volumes were thin as investors awaited the
inevitable. Sure enough, at the start of September, Mario Draghi
unveiled a European sovereign bond-buying programme called
‘Outright Monetary Transactions’ and the US Federal Reserve
announced a third and open-ended round of quantitative easing.
Policy Review
The Fund was launched on 8 May 2012. The Fund was only invested
up to 70% for its first full month of trading and this contributed to
outperformance in June. Corporate bond exposure was limited to
defensive areas and financial holdings only comprised approximately
8% of the Fund. Australian government bonds initially comprised a
significant position but have been steadily reduced in the period under
review as risk has been added. This is on the view that policy
developments in Europe and the US have been positive for markets in
general. Recently, we have been buying financials, adding to UK
banks like Lloyds and RBS. Their outstanding paper is diminishing as
they continue to announce buybacks and we think there are ongoing
buybacks in the pipeline that will typically execute at a decent premium
to where they are trading in the secondary market. We are avoiding
peripheral European banks but still getting decent returns from core
European banks. Although a lot of returns have been booked from US
financials, we still think they are pretty attractive versus the general
investment grade market so banks like Goldman Sachs, Citigroup and
Bank of America are core holdings for the Fund.
Investment Outlook
Our outlook for the remainder of the year is quite positive. The
introduction of a third round of Quantitative Easing (QE3) illustrates
the Federal Reserve’s determination to support markets. In our view,
there is currently a sustainable recovery taking place in the US. Higher
risk assets will benefit from a deluge of liquidity that the market has yet
to register fully, despite the rally since QE3 was announced.
However, despite the fact that Europe appears to be coming to terms
with the need to unite behind its debts and the commitment by the
chairman of the ECB to do ‘whatever it takes’ to stave off disaster, it is
hard to foresee meaningful economic growth in the near term.
Macroeconomic data remains poor and if fundamentals fail to improve
as we head into 2013, we will have to take a more cautious stance and
de-risk the portfolio. China continues to be a key uncertainty, with a slew
of mixed reports muddying the waters as to how the slowdown there is
unfolding. In addition, as we get closer to the end of 2012, markets are
becoming jittery about the US fiscal cliff. Commentators currently
forecast a potential impact of 4% to US GDP but it is our understanding
that there is a great deal of work going on behind the scenes to mitigate
this to more like 1%. Ultimately, we believe that there is a political
solution to the problem. Although the current environment has led to
traditional ‘safe-haven’ assets such as UK government bonds and
German bunds trading on very low yields, we believe that there are still
plenty of attractive fixed interest investment opportunities available.
However, we expect default rates, especially in Europe, to edge slowly
higher, therefore it is crucial to be highly selective.
Ariel Bezalel
30 October 2012
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