Talking Factsheet
Fixed income absolute return strategy
Mark Nash gives an overview of Jupiter’s fixed income absolute return strategy, how the investment process works, and how the team seek to generate alpha.
We're absolute return managers. And so we look on a macro perspective. And we're looking to achieve positive consistent returns across the cycle. So whatever the macro regime is we're looking to get a positive return. We're also looking for a good risk efficiency as well. So to avoid drawdowns along the way to try and produce a nice upward sloping profile of returns.
And so for our investors, if they put us alongside their more traditional, high yielding fixed income portfolios, they should be able to diversify their end outcomes.
How does the team invest in order to achieve the strategy's objectives?
Well, there's three key aspects about what we do. First of all, we are macro investors. And so the macro is really at the core of our strategy. We look to sort of examine what is the top down situation for growth and inflation in the global economy. And we build our strategy from that. Now in the market environment that we're experiencing, the macro is very volatile and really, really important.
If you don't get the macro right, it'll be very difficult to get any positions right within your portfolio. So that's the first thing. The second thing is the flexibility that we have. We do have an alpha driven process. We don't follow benchmarks. And we have a full derivative overlay. So we can actually make alpha on the short side as well as hedging out unwanted risk by using that derivative exposure as well.
We do invest in very liquid, highly rated sovereign instruments. And so we have the flexibility to also get out of trouble if our macro views are actually looking incorrect. Now the final aspect is we do have a low level of default risk because we predominantly invest in liquid sovereigns. We have a highly rated portfolio. So investors are worried about defaults in a high interest rate environment can come to us and they're not sacrificing the return potential, but they do get that level of safety as well.
Where does the team gain an investment edge that allows them to generate alpha?
So our edge comes in our flexibility both in how we formulate our strategy, but also in the construction of the portfolio. Now we use very liquid instruments, which means we can actually control the risk levels very tightly in the portfolio in case our views are actually looking like they might be incorrect. But also we have this full derivative overlay as well.
So we can actually make alpha on the short side. It's all about identifying the macro regime which we think we are going into and forming the portfolio construct that's going to work in that environment. If you are going to produce positive, consistent returns, then you need to have that flexibility to profit on the short side as well as the long side.
Now the other aspect that we use is yes, we do try and predict the macro, but predicting the macro is very difficult. We can see that from the central bank forecasts and how in the past they have had difficulty. So yes, we do try and think we can predict what's going to happen, but also we might be wrong.
And so what we use is also a systematic element alongside our macro predictions. We look at the market price action. So we look at the broader markets. We see how the price action is evolving relative to one another. That will give you all the information that you need to understand how the market place believes the key fundamentals to be changing.
If that's in line with our views, we will take more risk. If it's not, we will get risk down. But sometimes we'll change our strategy altogether, if the price action is telling us we are wrong.
Why Jupiter Strategic Absolute Return Bond Fund?
Investment philosophy
Step-by-step investment process
Transforming investment decisions into a live portfolio
Macro themes
Top-down views on global macro
Strategic (six month) and tactical (one month) asset allocation
Idea generation
Investments determined across the asset classes with support from sector specialists
Specialist teams (macro, emerging market debt and credit) support with country and corporate exposure
Portfolio construction
Team determines fund level of ex-ante risk, sector asset allocation and individual position risk weights
Risk budgeting process derives from conviction levels of the team
Model portfolio
Team strategy aligned with quantitative methodology – provides position sizes as a guide for the portfolio managers
Model portfolio used as a guide for fund constitution for live portfolio
Key characteristics of the fund
The team invests on a true absolute return basis, focusing on price movements for their returns rather than carry. The high-quality portfolio delivers liquidity and flexibility for the fund and its investors.
Construction is at the forefront of the investment process and embeds risk management along the way. In seeking to hit the fund’s risk and return targets, the manager uses a formulaic risk-budgeting approach.
The fund avoids a central and persistent investment theme: each position exists only if it is part of the team’s forward-looking view on the market. Risk is controlled actively to avoid drawdowns via a short-term tactical approach working alongside longer term strategic views.
The Jupiter Strategic Absolute Return Bond team combine both top-down economic fundamentals and bottom-up market mechanics to formulate their strategy. Sector specialists from Jupiter’s 25-member strong fixed income team provide high conviction ideas from within their asset classes. The management team feeds this into their construction framework, deciding on asset allocation and the total risk budget to create a highly diversified portfolio.
Meet the team
The portfolio manager, Mark Nash, is supported by a 25-member fixed income team, with expertise across global multi-sector, emerging market debt and credit, and draws on Jupiter’s wealth of expertise across fixed income and multi-asset.
Fund specific risks
- Investment risk – while the Fund aims to deliver above zero performance irrespective of market conditions, there can be no guarantee this aim will be achieved. Furthermore, the actual volatility of the Fund may be above or below the expected range, and may also exceed its maximum expected volatility. A capital loss of some or all of the amount invested may occur.
- Sustainability Article 8 – Investments are selected or excluded on both financial and non-financial criteria. The Fund’s performance may differ from the broader market or other Funds that do not utilize ESG criteria when selecting investments.
- Emerging markets risk – less developed countries may face more political, economic or structural challenges than developed countries.
- Credit risk – the issuer of a bond or a similar investment within the Fund may not pay income or repay capital to the Fund when due. Bonds which are rated below investment grade are considered to have a higher risk exposure with respect to meeting their payment obligations.
- CoCos and other investments with loss absorbing features – the Fund may hold investments with loss-absorbing features, including up to 20% in contingent convertible bonds (CoCos). These investments may be subject to regulatory intervention and/or specific trigger events relating to regulatory capital levels falling to a pre-specified point. This is a different risk to traditional bonds and may result in their conversion to company shares, or a partial or total loss of value.
- Bond Connect Risk – The rules of the Bond Connect scheme may not always permit the Fund to sell its assets, and may cause the Fund to suffer losses on an investment.
- Interest rate risk – investments in bonds are affected by interest rates and inflation trends which may affect the value of the Fund.
- Liquidity risk – some investments may become hard to value or sell at a desired time and price. In extreme circumstances this may affect the Fund’s ability to meet redemption requests upon demand.
- Derivative risk – the Fund uses derivatives to generate returns and/or to reduce costs and the overall risk of the Fund. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment. Derivatives also involve counterparty risk where the institutions acting as counterparty to derivatives may not meet their contractual obligations.
- Currency risk – the Fund can be exposed to different currencies. The value of your shares may rise and fall as a result of exchange rate movements.
The Fund may be more than 35% invested in Government and public securities. These can be issued by other countries and Governments. Your attention is drawn to the stated investment policy which is set out in the Fund’s prospectus.
The fund may be subject to other risk factors, please see the Prospectus for further information.
This is a marking communication. Please refer to the latest sales prospectus of the fund and to the Key Investor Information Document (KIID) or Key Information Document (KID), particularly to the fund’s investment objective and characteristics including those related to ESG (if applicable), before making any final investment decisions.