March 2020 | Jupiter Independent Funds Team
Barely a day goes by around the world without another lock-down, border closure, confinement order or congregation curtailment as countries look after their own domestic interests first, anybody else’s second. National portcullises are down, drawbridges up, gates firmly shut. Central bank policy statements and national treasury crisis responses to help support markets, businesses and livelihoods are ten-a-penny and on shifting sands; interest rates evaporate, the stimulus and life-boat sums are telephone numbers long.
It’s been a fast-moving environment since Saudi Arabia and Russia chose to disagree about how best to deal with the tumbling oil price in the face of weakening global demand as the virus spread, and Italy became the focus of attention away from China. Together they were the straws that broke the camel’s back.
Global equities have been testing and breaking new records for daily falls, the number of days of consecutive declines and indeed the magnitude of one-day bounces. Bonds, still regarded by regulators as bastions of security and stability, have seen wild gyrations in prices and yields as fixed income investors wilfully lead central banks to respond, or themselves respond to central bank actions or fiscal stimulus or political policy statements.
In context, since the MSCI World Equity Index peaked on February 20th, it has fallen enough to wipe out three years’ gains. The US 10 Year Treasury Yield has recently oscillated between 0.92%, all the way down to 0.44% and back up to 1.16% (as of 19th March 2020). It started the year at 1.92%, and in October 2018 it was 3.25%. This is the antithesis of stability.
As a shock simultaneously to the supply and demand sides of the global economy rapidly sows the seeds of financial contagion, posing a potential systemic risk, central banks have found themselves quickly having to adapt from trying to help economies to being instrumental in preventing markets drying up for lack of liquidity. Despite a raft of initiatives, one would hesitate to say they have it under control or that confidence and order have been restored.
Coming into the crisis the Jupiter Merlin Portfolios were positioned relatively defensively. Despite being able to hold 100% equities, Jupiter Merlin Growth and Jupiter Merlin Worldwide both held some cash and physical gold; moving down the risk scale, Jupiter Merlin Balanced and Jupiter Merlin Income were both well below their maximum equity exposure (they are diversified portfolios owning fixed income, a dedicated property fund immune from gating on account of any third party redemptions, gold and cash); Jupiter Merlin Conservative has the least equity exposure.
As the situation has evolved we have become even more defensive, particularly increasing the gold weighting (both physical gold and more recently a gold shares fund) and raising cash. We will take more action as required.
Despite the dislocation in markets, it’s business as usual on the Jupiter Independent Funds Team. We have proactively ramped up the frequency of contact with the managers of the funds we own; we are calmly but actively managing the Portfolios, particularly trying to anticipate and avoid torpedoes and landmines. The focus of our attention when talking to our managers is the extent to which they are confident the balance sheets of the companies they own will see those companies through the crisis.
The crisis will abate; investment opportunities will present themselves when the world returns to normal. However, it is impossible at this stage to predict when. The Jupiter Merlin Portfolios are long-term investments; they are certainly not immune from market volatility, but they are expected to be less volatile over time, commensurate with the risk tolerance of each. With liquidity uppermost in our mind, we seek to invest in funds run by experienced managers with a blend of styles but who share our core philosophy of trying to capture good performance in buoyant markets while minimising as far as possible the risk of losses in more challenging conditions.
Jupiter Independent Funds Team
Please note: 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.
Fund specific risks: The NURS Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request. The Jupiter Merlin Conservative Portfolio can invest more than 35% of its value in securities issued or guaranteed by an EEA state. The Jupiter Merlin Income, Jupiter Merlin Balanced and Jupiter Merlin Conservative Portfolios’ expenses are charged to capital, which can reduce the potential for capital growth.
Important Information: This content is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. It is for informational purposes only and is not investment advice. Past performance is no guide to the future. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Holding examples are not a recommendation to buy or sell. Quoted yields are not guaranteed and may change in the future. Issued by Jupiter Unit Trust Managers Limited (JUTM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ which is authorised and regulated by the Financial Conduct Authority. No part of this document may be reproduced in any manner without the prior permission of JUTM. 25300
