Star manager Alexander Darwall to step down from his open-ended funds

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Star manager Alexander Darwall to step down from his open-ended funds

Alexander Darwall, a star manager at Jupiter, has recently announced that he is giving up his role as manager of their European open-ended funds, but is continuing with the equivalent investment trust.

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It has recently been confirmed that Alexander Darwall will stop running the £5.3bn Jupiter European and £2.5bn Jupiter European Growth funds later this year. Once he steps down the only way to benefit from his market beating stock selection skills will be via the £880m Jupiter European Opportunities (LON:JEO) investment trust.

Darwall has built up a strong following amongst investors as a result of his exceptional long-term track record. Since he took charge at JEO in November 2000 he has delivered NAV total returns of 12.8% per annum versus just 4.7% per annum for its MSCI Europe ex UK benchmark.

Mark Nichols has been recruited from Columbia Threadneedle to take over as lead manager of the open-ended funds. He was chosen because he has a good performance record of running substantial portfolios with a concentrated, growth style, using an unconstrained, active approach.

Nichols will join Jupiter on July 1 and there will then be a three- or four-month transitional period during which Darwall will explain his investment rationale for the holdings in the funds. After that Nichols will take full control of the portfolios.

No changes for investors in Jupiter European Opportunities

There will be no changes for investors in Jupiter European Opportunities, as Darwall has intimated that he intends to carry on running the investment trust for at least another five years. It is in his best interest to make sure that he continues to do well as he owns around 3.7% of the shares – a stake worth around £32m – and benefits from a performance fee of 15% of the NAV total return outperformance over the benchmark.

Darwall uses an unconstrained, stock driven approach with an emphasis on special, growth-oriented companies. This has resulted in a concentrated portfolio that bears little relation to the benchmark.

It is interesting as his funds are not really a play on Europe, but rather special European companies, especially those that can respond to change and have exceptional business models. Darwall believes that the risk of this approach is mitigated by focusing on uncorrelated single companies that are diversified by geography and sector.

JEO has a concentrated portfolio of around 35 holdings, with the top ten at the end of March accounting for 76% of net assets. The key themes include consumer demand, alternative finance, digital technologies and healthcare.

Considerable upside

Its largest holding, the internet payment and processing services company Wirecard, fell more than 30% in sterling terms at one point this year, but has since recovered and is now down less than 5%. Despite the volatility, Darwall has not seen anything to make him change his mind about the business and he still sees considerable upside even though the shares have nearly trebled over the last three years.

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It is possible that some of the investors with money in the open-ended funds will switch into the investment trust over the next few months. The broker Numis estimates that from 2 April to 25 April there were outflows of around £137m from the Jupiter European Growth Fund, which was equivalent to 5.5% of its assets.Over the same period the discount on JEO narrowed from 5% to 2.7%.

Jupiter European Opportunities has a strong long-term record, with a NAV total return of 832% since its launch in November 2000 compared with a rise of 183% for the FTSE World Europe ex UK index and 245% for its European peer group. The shares are currently trading close to NAV.

Numis says that JEO has consistently traded on a premium for sustained periods and they see the potential for this to happen again, especially if the uncertainty surrounding the holding in Wirecard is resolved. They also point out that the downside to the discount is limited by the use of share buybacks to ensure that the share price tracks the underlying NAV in normal market conditions.

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