It is very rare to come across a fund that has consistently beaten its benchmark over a long period of time, which is why Jupiter UK Growth deserves a closer look. Top quartile performance over one, three, five and ten years is a special achievement, especially when measured against the hundreds of other managers operating in the UK All Companies sector.
You can see what a difference this makes to investors when you look at the returns. Over the 10 years to the end of June the fund was up 192.1%, whereas its FTSE All-Share benchmark had only risen 97.7%. This is almost 100% better and means that you would have made twice as much money compared to a tracker fund or the sector average which came in at 102.6%.
The current manager, Steve Davies, only got involved in the fund in 2013, but he has an interesting approach that combines two very different strategies into a highly concentrated portfolio of 30 to 35 core holdings.
The first part of the fund consists of recovery stocks. These are companies that are out of favour with the market where Davies has identified a catalyst for change like a restructuring in the industry or new management.
A recent example is the travel agent, Thomas Cook, which has struggled as a result of the severe disruption affecting popular holiday destinations such as Greece and Tunisia. Davies has invested because he is confident that the company can turn it around, especially as it is well placed to benefit from the low oil price, which makes foreign holidays cheaper.
The rest of the portfolio is made up of growth stocks, which are companies that can achieve above average rates of growth. These include the likes of Barclays and Lloyds, which have both reported significant improvements in their businesses and should do even better once UK interest rates start to rise as they will be able to earn higher profit margins.
Lloyds Bank is the fund’s biggest holding at 7.4%, with Barclays not far behind at 6.3% and Thomas Cook coming in at 3.8%. In total the top ten make up just under half of the assets, which shows what a concentrated portfolio Davies has put together, with the other big positions including: Dixons Carphone, Legal & General and Howden Joinery.
Another interesting area that the manager has identified is the long-term growth opportunity that is available to some of the top global brands. He thinks that the emergence of the middle classes in places like China and India will result in a significant increase in discretionary consumer spending that will help his international stocks such as Apple, BMW and Manchester United, which is listed in the US.
Jupiter UK Growth was launched in April 1988 and has built up an excellent track record. The manager’s flexible approach means that it is capable of generating decent returns in most economic conditions.