Description

There is difference between trading and investing. The most important rules for trading are:

1.       Make sure your position is not too big relative to the market

2.       Make sure your position is not too big relative to your book

3.       Make sure you don’t fall in love with your positions

Investors like to think that they are beyond the mundane concerned of trading a portfolio.

[As an aside: The key rules for investing are:

1.       Make sure you understand what a company does

2.       Make sure that you understand how the company makes the numbers that it does

3.       Make sure that the management is frank, open and honest  ]

This is a story of one fund manager – Alexander Darwall. According to Bloomberg he runs the following funds (AUMs as per 17 April 2019 from Bloomberg):

1.        Jupiter European Fund (JEF) - GBP 5.4Bn (about $7bn) (JUPEURI LN – a UK unit trust) [April fund fact sheet says GBP 5.311bn at end of March]

2.       Jupiter European Growth Fund (JEGF) – EUR 2.8Bn (about $3.2bn) (JGAPEOL LX – a Luxembourg open ended fund ie SICAV with multiple share classes) [April Fund Factsheet says Eur 2.856Bn at end of March]

3.       Jupiter European Opportunities Fund (JEO) – GBP 866.31 Mn (about $1.13Bn)(JEO LN– a UK investment trust)

On 1 April 2019 it was announced that Jupiter Fund Management had hired Mark Nichols from Columbia Threadneedle to take over the European Fund and the European Growth Sicav (see https://www.investmentweek.co.uk/investment-week/news/3073449/european-equities-veteran-alexander-darwall-to-step-down-from-flagship-funds ).

We find it intriguing that Jupiter announced the joining of Mark Nichols before he was physically through the door. A note on his bio on Bloomberg suggests that he will be joining Jupiter at the ‘end of 2019’.

We also observe that Andrew Formica recently joined Jupiter as CEO – previously he was co-CEO of Janus Henderson. Management change often leads to a changing of staff and investment style.

On a rough calculation we estimate that Alexander Darwall’s directly managed AUM has fallen by about 90% - leaving him only running JEO which is a listed investment trust.

What makes the above more interesting is that we estimate that all three funds had concentrated positions. For instance consider Wirecard. As of the end of March 2019 JEF and JEGF had 7.4% of each of their respective NAV in this company; and JEO had 15.82% of its NAV in the company (source – fund factsheets listed at the end of this article). All told according to Bloomberg (WDI GY <EQUITY> HDS <GO>) Jupiter owns 5% of Wirecard across these funds.

It appears to us that JEF and JEGF are open ended funds where investors can redeem (there may be side letters locking investors in that we are not aware of) whilst JEO is a close ended listed fund. This raises the interesting question whether JEF and JEGF will be changing their portfolio once Mark Nichols takes over – and also whether investors will leave any open ended funds due to the change in fund manager leading to forced selling of underlying positions.

Clearly JEF and JEGF selling their holdings is likely to have an impact on JEO LN which, as an investment company is listed and fairly liquid.

Also of interest the 2018 Annual report for JEO refers to the trust seeking authority to repurchase upto 14.99% of its share capital. This authority is often sought by investment trusts to ensure that their discount to NAV does not get too large. Of course, should the trust trade at a significant discount to NAV it might either gear up (ie deploy some of its loan facilities) and / or sell assets to buy back shares. But as a trust shrinks, more investors sell and that might lead to a spiral.

Conclusion:

We would suggest that the chance the larger funds (representing 90% of the AUM) are going to go through a manager change there is a non-zero chance that the smaller listed fund suffers as the larger funds unwind their common positions. It is not clear to us whether that happens now or when the new fund manager starts.

Also the change of fund manager might lead to redemptions by holders of the larger funds.

Sources:

Jupiter European Fund

Fund docs - https://www.jupiteram.com/UK/en/Individual-Investors/Funds-and-Prices/Jupiter-European-Fund?sc=GB00B5STJW84

Factsheet - https://www.jupiteram.com/UK/en/Individual-Investors/Document-Library?itemName=Jupiter+European+Fund+Factsheet

Jupiter European Growth Fund:

Fund docs - https://www.jupiteram.com/UK/en/Individual-Investors/Funds-and-Prices/Jupiter-European-Growth?sc=LU0260085492

Factsheet - https://www.jupiteram.com/UK/en/Individual-Investors/Document-Library?itemName=Jupiter+European+Growth+Factsheet

Jupiter European Opportunities Fund

Fund docs - https://www.jupiteram.com/UK/en/Individual-Investors/Funds-and-Prices/Jupiter-European-Opportunities-Trust-PLC

Fund holdings - https://www.jupiteram.com/UK/en/Individual-Investors/Funds-and-Prices/Jupiter-European-Opportunities-Trust-PLC

Annual report - http://doc.morningstar.com/document/0c8af0698ad1947f20f34e3ba543d663.msdoc/?clientid=jupiteram&key=2df6aba439658830

Catalyst

Change of manager for two larger funds with high position overlap and concentrated portfolio