A portfolio for all seasons
A portfolio for all seasons
Investment managers Jason Pidcock and Sam Konrad explain why they think the Jupiter Asian Equity Income strategy is well positioned for lower interest rates.
Several major central banks have started to cut interest rates, as inflationary pressures have begun to ease, and growth expectations have fallen. In September, the US Federal Reserve (“Fed”) reduced rates for the first time in more than four years, from a two-decade high; more rate cuts are expected shortly. Elsewhere, several central banks had already started to cut rates before the US, while others are likely to follow suit.
Given significant ongoing political and geopolitical risk, and scope for shocks, central banks could bring rates down even faster than current consensus expectations.
Given significant ongoing political and geopolitical risk, and scope for shocks, central banks could bring rates down even faster than current consensus expectations.
Growing focus on dividends
In a lower interest rate world, dividend income will likely become better appreciated by investors. This means that we expect to see investors shifting their focus towards companies that offer generous dividend policies.
In the Jupiter Asian Equity Income strategy, we look to identify the most attractive income and growth opportunities in the Asia Pacific (ex Japan) region, with a focus on companies that have both an ability and a willingness to pay – and grow – their dividends. We look for companies that have high barriers to entry, solid balance sheets, strong management teams and good governance.
In the Jupiter Asian Equity Income strategy, we look to identify the most attractive income and growth opportunities in the Asia Pacific (ex Japan) region, with a focus on companies that have both an ability and a willingness to pay – and grow – their dividends. We look for companies that have high barriers to entry, solid balance sheets, strong management teams and good governance.
Performing well in a lower rate environment…
As the interest rate cutting cycle begins and we potentially see a tougher global economic environment over the next 12 months, we believe that our strategy is well positioned for this backdrop. Some of our companies generate earnings that are relatively “defensive” or less volatile; at the same time, we also have exposure to other companies that we think should be able to adapt well, with earnings that we think will continue to structurally grow, for example in the technology sector.
Within the property sector, we now hold four REITs in our strategy: Link REIT in Hong Kong; Dexus in Australia; Embassy Office Park REIT in India; and Singapore-listed CapitaLand Integrated Commercial Trust, which we added to the strategy in September. As rates come down, the cost of REITs’ debt will also come down. Furthermore, as so-called “bond proxies”, their dividend yields will become increasingly attractive in relative terms, compared to the lower bond yields on offer.
Elsewhere, we also have exposure to gold through a position in Newmont, the world’s largest gold miner. We think US-dollar gold will be supported by a fall in US interest rates while fiscal deficits remain extremely high, and geopolitical tensions remain elevated.
Within the property sector, we now hold four REITs in our strategy: Link REIT in Hong Kong; Dexus in Australia; Embassy Office Park REIT in India; and Singapore-listed CapitaLand Integrated Commercial Trust, which we added to the strategy in September. As rates come down, the cost of REITs’ debt will also come down. Furthermore, as so-called “bond proxies”, their dividend yields will become increasingly attractive in relative terms, compared to the lower bond yields on offer.
Elsewhere, we also have exposure to gold through a position in Newmont, the world’s largest gold miner. We think US-dollar gold will be supported by a fall in US interest rates while fiscal deficits remain extremely high, and geopolitical tensions remain elevated.
…regardless of a hard or soft landing
If lower interest rates were to be accompanied by a hard or harder economic landing, we hold plenty of businesses that we believe would be resilient. These include a toll road operator in Australia (Transurban), a Korean infrastructure company (Macquarie Korea Infrastructure Fund), the largest electricity transmission company in India (Power Grid Corporation), two telecommunications companies (Singapore Telecommunications or “SingTel”, and Telkom Indonesia), and a Singapore-based engineering and defence company (ST Engineering).
We also hold several companies that we believe are better positioned for a soft landing instead, including our five technology holdings: TSMC, MediaTek, Samsung Electronics, Hon Hai Precision and HCL Technologies. If we were to see an economic downturn, however, we believe that many companies in the technology sector would still prove to be more resilient than some currently predict. The tech companies we hold are all in a net cash position; they offer attractive dividend yields; and we view each as the best, or among the best, at what it does.
We also hold several companies that we believe are better positioned for a soft landing instead, including our five technology holdings: TSMC, MediaTek, Samsung Electronics, Hon Hai Precision and HCL Technologies. If we were to see an economic downturn, however, we believe that many companies in the technology sector would still prove to be more resilient than some currently predict. The tech companies we hold are all in a net cash position; they offer attractive dividend yields; and we view each as the best, or among the best, at what it does.
Navigating a changing backdrop
We believe that many of the companies we hold should benefit from, or remain resilient in, a lower interest rate environment. Rather than taking big bets on economic scenarios, we prefer to make more modest adjustments to position the portfolio so it can deliver through macroeconomic cycles – irrespective of whether the outlook is improving or deteriorating, growth or value as a style is “in vogue”, or geopolitical tensions are rising or falling.
Our approach has worked well for us over time: we have faced many different macro and market conditions for our Asian Equity Income strategy, but we have been able to successfully navigate the changing backdrop. If we were to see shocks as a result of escalating geopolitical tensions, and rates were to come down even faster than current expectations, we believe the strategy is positioned in such a way that it should be able to withstand these shocks relatively well.
Our approach has worked well for us over time: we have faced many different macro and market conditions for our Asian Equity Income strategy, but we have been able to successfully navigate the changing backdrop. If we were to see shocks as a result of escalating geopolitical tensions, and rates were to come down even faster than current expectations, we believe the strategy is positioned in such a way that it should be able to withstand these shocks relatively well.
Strategy-specific risks
- Currency (FX) Risk – The strategy can be exposed to different currencies and movements in foreign exchange rates can cause the value of investments to fall as well as 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.
- Emerging Markets Risk – Emerging markets are potentially associated with higher levels of political risk and lower levels of legal protection relative to developed markets. These attributes may negatively impact asset prices.
- 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.
- Market Concentration Risk (Number of holdings) – The strategy holds a relatively small number of stocks and may therefore be more exposed to under-performance of a particular company or group of companies compared to a portfolio that invests in a greater number of stocks.
- Derivative Risk – the strategy may use derivatives to reduce costs and/or the overall risk of the strategy (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 strategy.
- Liquidity Risk (general) – During difficult market conditions there may not be enough investors to buy and sell certain investments. This may have an impact on the value of the strategy.
- Counterparty Risk – the risk of losses due to the default of a counterparty e.g. on a derivatives contract or a custodian that is safeguarding the strategy’s assets.
- Charges from capital – Some or all of the strategy’s charges are taken from capital. Should there not be sufficient capital growth in the strategy this may cause capital erosion.
- Stock Connect Risk – Stock Connect is governed by regulations which are subject to change. Trading limitations and restrictions on foreign ownership may constrain the strategy’s ability to pursue its investment strategy.
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Important information
This document is intended for investment professionals* and is not for the use or benefit of other persons, including retail investors. This document is for informational purposes only and is not investment advice. Company examples are for illustrative purposes only and are not recommendations to buy or sell. 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. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI/JAM HK.
*In Hong Kong, investment professionals refer to Professional Investors as defined under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong).and in Singapore, Institutional Investors as defined under Section 304 of the Securities and Futures Act, Chapter 289 of Singapore.
For professional investors in US Offshore only:
The Jupiter Asia Pacific Income Fund (IRL) has not been registered under the United States Investment Company Act of 1940, as amended, nor the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any US Person, unless the securities are registered under the Act, or an exemption from the registration requirements of the Act is available. A US Person is defined as (a) any individual who is a citizen or resident of the United States for federal income tax purposes; (b) a corporation, partnership or other entity created or organized under the laws of or existing in the United States; (c) an estate or trust the income of which is subject to United States federal income tax regardless of whether such income is effectively connected with a United States trade or business.
For professional investors in LATAM only:
Legal Notice for Residents in the Republic of Argentina: This document includes a private invitation to invest in securities. It is addressed only to you on an individual, exclusive, and confidential basis, and its unauthorised copying, disclosure, or transfer by any means whatsoever is absolutely and strictly forbidden. Jupiter Asset Management will not provide copies of this prospectus, or provide any kind of advice or clarification, or accept any offer or commitment to purchase the securities herein referred to from persons other than the intended recipient. The offer herein contained is not a public offering, and as such it is not and will not be registered with, or authorised by, the applicable enforcement authority. The information contained herein has been compiled by Jupiter Asset Management, who assumes the sole responsibility for the accuracy of the data herein disclosed.
Legal Notice for Residents in Brazil: The Fund may not be offered or sold to the public in Brazil. Accordingly, the Fund has not been and will not be registered with the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários, the “CVM”), nor has been submitted to the foregoing agency for approval. Documents relating to the Funds, as well as the information contained therein, may not be supplied to the public in Brazil, as the offering is not a public offering of funds in Brazil, nor used in connection with any offer for subscription or sale of funds to the public in Brazil.
Aviso Legal para Residentes en Chile: Esta oferta privada se inicia el día según lo establecido en el título y se acoge a las disposiciones de la norma de carácter general nº 336 de la Superintendencia de Valores y Seguros. Esta oferta versa sobre valores no inscritos en el registro de valores o en el registro de valores extranjeros que lleva la Superintendencia de Valores y Seguros, por lo que tales valores no están sujetos a la fiscalización de ésta. Por tratar de valores no inscritos no existe la obligación por parte del emisor de entregar en Chile información pública respecto de los valores sobre los que versa esta oferta. Estos valores no podrán ser objeto de oferta pública mientras no sean inscritos en el Registro de Valores correspondiente.
This is not an offer of securities in Colombia or to any Colombian national, citizen or resident of Colombia or a corporation or partnership organized under the laws of Colombia or having a principal place of business in Colombia (“Colombian Residents”). All information, statistics, data and projections provided herein (the “Information”) along with the prospectus of each one of the funds (the “Prospectus”) are not intended for distribution, promotion or marketing purposes to Colombian Residents. Both the Information and Prospectus: (i) have been drafted, prepared and listed for investment professionals and are not intended to be addressed to any individual investor or to the general public in Colombia; and (ii) does not constitute a public offer under the current provisions of Colombia as they are not being offered or addressed to an undetermined amount of people or to more than one hundred individually identified potential investors. The Information and Prospectus listed herein are not an invitation tosubscribefor units in funds or any other fund managed by Jupiter (the “Funds”). Funds’ units mentioned in this Prospectus have not been, and will not be, registered under any applicable securities laws in Colombia. Therefore, they may not be publicly offered in Colombia or to or for the benefit of a Colombian Resident (as defined above). The Funds may not be distributed, promoted or marketed in Colombia or to Colombian residents, unless such promotion and marketing is performed by an authorized distributor in compliance with Part 3 of Decree 2555 of 2010 and any other applicable rules and regulations related to the promotion of foreign funds in Colombia as amended from time to time. The Information and Prospectus is listed for general guidance only, and it is the responsibility of any person or persons in possession of this documentation to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Potential applicants for Fund’s units should inform themselves of any applicable legal requirements, exchange control regulations and applicable taxes in the countries of their respective citizenship, residence or domicile.
This private offer commences on the date as stated in the title and it avails itself of the General Regulation No. 336 of the Superintendence of Securities and Insurance. This offer relates to securities not registered with the Securities Registry or the Registry of Foreign Securities of the Superintendence of Securities and Insurance, and therefore such shares are not subject to oversight by the latter. Being unregistered securities, there is no obligation on the issuer to provide public information in Chile regarding such securities. These securities may not be subject to a public offer until they are registered in the corresponding Securities Registry.
Legal Notice for Residents of Mexico: The securities have not been and will not be registered with the National Registry of Securities, maintained by the Mexican National Banking and Securities Commission and, as a result, may not be offered or sold publicly in Mexico. The fund and any underwriter or purchaser may offer and sell the securities in Mexico on a private placement basis to Institutional and Accredited Investors pursuant to Article 8 of the Mexican Securities Market Law.
Legal Notice for Residents of Paraguay: The Shares have not been registered with the Comisión Nacional de Valores of Paraguay (CNV), neither with the Stock Exchange of Asuncion (BVPASA) and are being placed by means of a private offer. CNV nor BVPASA has not reviewed the information provided to the investor. This document is only for the exclusive use of specific investor in Paraguay and is not for public distribution.
Legal Notice for Residents of Peru: The funds have not been registered before the Superintendencia del Mercado de Valores (SMV) and are being placed by means of a private offer. SMV has not reviewed the information provided to the investor. This document is only for the exclusive use of institutional investors in Peru and is not for public distribution.
Legal Notice for Residents of Uruguay: The sale of the securities qualifies as a private placement pursuant to section 2 of Uruguayan law 18,627. The securities must not be offered or sold to the public in Uruguay, except in circumstances which do not constitute a public offering or distribution under Uruguayan laws and regulations. The securities are not and will not be registered with the Financial Services Superintendency of the Central Bank of Uruguay. The securities correspond to investment funds that are not investment funds regulated by Uruguayan law 16,774 dated September 27, 1996, as amended.
The Jupiter Asia Pacific Income Fund (IRL) has not been registered under the United States Investment Company Act of 1940, as amended, nor the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any US Person, unless the securities are registered under the Act, or an exemption from the registration requirements of the Act is available. A US Person is defined as (a) any individual who is a citizen or resident of the United States for federal income tax purposes; (b) a corporation, partnership or other entity created or organized under the laws of or existing in the United States; (c) an estate or trust the income of which is subject to United States federal income tax regardless of whether such income is effectively connected with a United States trade or business.
For professional investors in LATAM only:
Legal Notice for Residents in the Republic of Argentina: This document includes a private invitation to invest in securities. It is addressed only to you on an individual, exclusive, and confidential basis, and its unauthorised copying, disclosure, or transfer by any means whatsoever is absolutely and strictly forbidden. Jupiter Asset Management will not provide copies of this prospectus, or provide any kind of advice or clarification, or accept any offer or commitment to purchase the securities herein referred to from persons other than the intended recipient. The offer herein contained is not a public offering, and as such it is not and will not be registered with, or authorised by, the applicable enforcement authority. The information contained herein has been compiled by Jupiter Asset Management, who assumes the sole responsibility for the accuracy of the data herein disclosed.
Legal Notice for Residents in Brazil: The Fund may not be offered or sold to the public in Brazil. Accordingly, the Fund has not been and will not be registered with the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários, the “CVM”), nor has been submitted to the foregoing agency for approval. Documents relating to the Funds, as well as the information contained therein, may not be supplied to the public in Brazil, as the offering is not a public offering of funds in Brazil, nor used in connection with any offer for subscription or sale of funds to the public in Brazil.
Aviso Legal para Residentes en Chile: Esta oferta privada se inicia el día según lo establecido en el título y se acoge a las disposiciones de la norma de carácter general nº 336 de la Superintendencia de Valores y Seguros. Esta oferta versa sobre valores no inscritos en el registro de valores o en el registro de valores extranjeros que lleva la Superintendencia de Valores y Seguros, por lo que tales valores no están sujetos a la fiscalización de ésta. Por tratar de valores no inscritos no existe la obligación por parte del emisor de entregar en Chile información pública respecto de los valores sobre los que versa esta oferta. Estos valores no podrán ser objeto de oferta pública mientras no sean inscritos en el Registro de Valores correspondiente.
This is not an offer of securities in Colombia or to any Colombian national, citizen or resident of Colombia or a corporation or partnership organized under the laws of Colombia or having a principal place of business in Colombia (“Colombian Residents”). All information, statistics, data and projections provided herein (the “Information”) along with the prospectus of each one of the funds (the “Prospectus”) are not intended for distribution, promotion or marketing purposes to Colombian Residents. Both the Information and Prospectus: (i) have been drafted, prepared and listed for investment professionals and are not intended to be addressed to any individual investor or to the general public in Colombia; and (ii) does not constitute a public offer under the current provisions of Colombia as they are not being offered or addressed to an undetermined amount of people or to more than one hundred individually identified potential investors. The Information and Prospectus listed herein are not an invitation tosubscribefor units in funds or any other fund managed by Jupiter (the “Funds”). Funds’ units mentioned in this Prospectus have not been, and will not be, registered under any applicable securities laws in Colombia. Therefore, they may not be publicly offered in Colombia or to or for the benefit of a Colombian Resident (as defined above). The Funds may not be distributed, promoted or marketed in Colombia or to Colombian residents, unless such promotion and marketing is performed by an authorized distributor in compliance with Part 3 of Decree 2555 of 2010 and any other applicable rules and regulations related to the promotion of foreign funds in Colombia as amended from time to time. The Information and Prospectus is listed for general guidance only, and it is the responsibility of any person or persons in possession of this documentation to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Potential applicants for Fund’s units should inform themselves of any applicable legal requirements, exchange control regulations and applicable taxes in the countries of their respective citizenship, residence or domicile.
This private offer commences on the date as stated in the title and it avails itself of the General Regulation No. 336 of the Superintendence of Securities and Insurance. This offer relates to securities not registered with the Securities Registry or the Registry of Foreign Securities of the Superintendence of Securities and Insurance, and therefore such shares are not subject to oversight by the latter. Being unregistered securities, there is no obligation on the issuer to provide public information in Chile regarding such securities. These securities may not be subject to a public offer until they are registered in the corresponding Securities Registry.
Legal Notice for Residents of Mexico: The securities have not been and will not be registered with the National Registry of Securities, maintained by the Mexican National Banking and Securities Commission and, as a result, may not be offered or sold publicly in Mexico. The fund and any underwriter or purchaser may offer and sell the securities in Mexico on a private placement basis to Institutional and Accredited Investors pursuant to Article 8 of the Mexican Securities Market Law.
Legal Notice for Residents of Paraguay: The Shares have not been registered with the Comisión Nacional de Valores of Paraguay (CNV), neither with the Stock Exchange of Asuncion (BVPASA) and are being placed by means of a private offer. CNV nor BVPASA has not reviewed the information provided to the investor. This document is only for the exclusive use of specific investor in Paraguay and is not for public distribution.
Legal Notice for Residents of Peru: The funds have not been registered before the Superintendencia del Mercado de Valores (SMV) and are being placed by means of a private offer. SMV has not reviewed the information provided to the investor. This document is only for the exclusive use of institutional investors in Peru and is not for public distribution.
Legal Notice for Residents of Uruguay: The sale of the securities qualifies as a private placement pursuant to section 2 of Uruguayan law 18,627. The securities must not be offered or sold to the public in Uruguay, except in circumstances which do not constitute a public offering or distribution under Uruguayan laws and regulations. The securities are not and will not be registered with the Financial Services Superintendency of the Central Bank of Uruguay. The securities correspond to investment funds that are not investment funds regulated by Uruguayan law 16,774 dated September 27, 1996, as amended.