Talking Factsheet
Jupiter UK Multi Cap Income Fund
Adrian Gosden and Chris Morrison give an overview of the UK multi cap income strategy, including the investment process and how the team seek to generate alpha.
So what we're doing here is we're paying two dividends a year from the fund. So it enables clients to use that income for what they need and keep the capital intact. At this point in time, the income on the fund is very competitive compared to cash or indeed, what you can get in fixed income. But the big difference is that the income is growing, and that's incredibly important for investors in a world where inflation exists.
So the income they're getting from the fund is growing, and that puts them in a good place against the costs of what they need to spend their money.
How does the team invest in order to achieve the strategy's objectives?
So we have a philosophy that recognises the importance of reinvesting dividends. And this has a proven track record of delivering strong returns over any meaningful time period. Compounding interest or compounding dividends is very powerful, particularly in the UK market. And this draws us to areas of the market that are out of favor and where we see scope for real, significant share price appreciation.
How do we go about this? Well, we look for those companies across all areas of the market cap that can generate a lot of free cash flow relative to their size, relative to their market capitalisation. We then meet management to understand how they're going to use this cash flow. So we want to see some of that return to us in the form of dividends.
And for that dividend to be growing, to be progressive. But we'd also encourage them to do bolt on acquisitions, to do buybacks, and also to reinvest in the company as well, so they can prosper in the future. So they're the traits that we look for in our investments.
Where does the team gain an investment edge that allows them to generate alpha?
We've used the same process on equity income for decades, and we use it because it works. This search for the cash generation that these companies have, that is the ability to pay the dividends and produce the returns we want. But as Chris was talking about in that process, we're actually engaging with these companies to meet them to understand what they're going to do with their cash.
We even go on site visits to look at the facilities to understand exactly where we are. And unfortunately, that comes a very hard thing to articulate. And it's just experience. It's 30 years of doing this and understanding it so you know how to react in a Covid. You know how to react in a financial crisis, a technology boom, a war, Iran, Iraq, Ukraine, they've all been there in the 30 years in different forms. And you've had to react. And it's being able to do that with confidence to produce the returns for customers. That is important.
Taking a disciplined, high conviction approach aimed at investing in undervalued, cash-generative companies with strong balance sheets and reliable dividends.
Why UK equities, why now?
Unloved and undervalued
The UK market is undervalued versus history and versus other markets, and returns have trailed those of the more technology-heavy US market since the Covid pandemic. However, there are signs that this may be starting to change. The FTSE 100 and FTSE All Share indices have notched record highs this year. Global investors remain underweight to the UK, but we believe that there are a confluence of macroeconomic factors beginning to take effect which provides an appealing backdrop for UK equity income investors. Given the historical levels at which the UK market is undervalued, we believe that this provides a rare opportunity to invest in quality companies at discount prices.
Supportive macro backdrop and corporate activity
After sustained headwinds, the macroeconomic environment for the UK is encouraging, driven by depressed valuations, strong corporate activity, and the potential for easing monetary policy. There has been an 84% increase in M&A activity involving a UK target compared to 2023. There has also been a dramatic increase in share buybacks by UK companies – we expect to see around £50 billion in buybacks this year, and a total of £150 billion over three years. The trend in share buybacks comes as UK pension funds wind down their sale of UK equities. Pension funds cut their holdings from £590 billion in 1997 to £120 billion currently, to diversify their portfolios. We see a potential inflection point for the market from these selling and buyback trends.
Aiming to generate income and capital growth
By identifying companies with strong balance sheets and reliable dividend streams, the strategy looks to provide both income and capital growth.
High conviction
The strategy invests in 50-60 stocks, strong balance sheets and sensible capital allocation are vital.
Delivering dividends
The strategy aims to deliver a secure, reliable dividend and yield in excess of the market.
ESG aware
Enviornmental, social and governance factors play an important role in the screening and identification of companies the strategy invests in.
Experienced investment team
The team, led by Adrian Gosden and Chris Morrison have more than 50 years of combined investment experience in the UK market.
Robust, repeatable and reliable investment process
The strategy has a reliable method and track record of investing in good quality companies at attractive valuations.
Key fund characteristics
Fund specific risks
- Interest Rate Risk – The Fund can invest in assets whose value is sensitive to changes in interest rates (for example bonds) meaning that the value of these investments may fluctuate significantly with movement in interest rates, e.g. the value of a bond tends to decrease when interest rates rise
- Pricing Risk – Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
- Market Concentration Risk (Geographical Region/Country) – Investing in a particular country or geographic region can cause the value of this investment to rise or fall more relative to investments whose focus is spread more globally in nature.
- Derivative risk – the Fund may use derivatives to reduce costs and/or the overall risk of the Fund (this is also known as Efficient Portfolio Management or “EPM”). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the Fund.
- Counterparty Default Risk – The risk of losses due to the default of a counterparty on a derivatives contract or a custodian that is safeguarding the Fund’s assets.
- Smaller Companies – The Fund invests in smaller companies, which can be less liquid than investments in larger companies and can have fewer resources than larger companies to cope with unexpected adverse events. In less favourable market conditions these companies may therefore under-perform larger companies and the Fund may under-perform funds that invest predominantly in larger companies.
For a more detailed explanation of risks, please refer to the “Risk Factors” section of the prospectus.
Important Information
Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Past performance is not a guide to future performance. Company/Holding/Stock examples are for illustrative purposes only and are not a recommendation to buy or sell. Quoted yields are not a guide or guarantee for the expected level of distributions to be received. The yield may fluctuate significantly during times of extreme market and economic volatility. Awards and Ratings should not be taken as a recommendation. Every effort is made to ensure the accuracy of the information provided but no assurance or warranties are given. This communication is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with a financial adviser, particularly if you are unsure whether an investment is suitable. Jupiter is unable to provide investment advice. An investor should read The Key Investor Information Document (KIID) before investing in the Fund. The KIID, Supplementary Information Document and Scheme Particulars for the fund are available for download from www.jupiteram.com