Any successful long-term investment approach should follow a repeatable process. A traditional stock picker might have an implicit process starting perhaps with a valuation model, personal interpretation of the current economic climate, and the stage of the economic cycle. Ultimately, stock selection might be a result of whether the investor “likes or dislikes” a particular stock based on the above information – supplemented by their experience, applying soft skills and judgement in personal meetings with management.
Our team’s systematic process, used for the Jupiter Merian fund range, is in many ways similar, with a solid traditional stock picking approach. One can think of it as a “divide and conquer” method to the traditional approach, where each individual step has been first tested for validity and subsequently coded into rules that are systematically followed by the investment team to construct portfolios. There are, however, some important differences between our systematic approach and traditional investing.
No decisions made ‘on the fly’
One of the key fundamental differences is that all criteria in our systematic approach have been decided before the stock picking takes place. No decisions are made “on the fly” and it is therefore a very dispassionate process. All rules are based on solid economic rationale and tested for validity before being put into practice. Once included in the model they are strictly followed, and although our team enhance the model itself, gradually over time, there is no ad hoc ‘tweaking’ of the individual stock picks. In fact, some of the model’s stock picking criteria are specifically designed to take advantage of a typical investor’s behavioural biases (as evidenced in academic literature), such as mispricing’s that occur due to investors’ acting emotionally and often responding sub-optimally to market events.
In our systematic approach every stock pick can be traced back to the underlying reasons/criteria for choosing that stock. Also, when that stock out/under -performs in the future we can attribute the performance to all the criteria that were set out before the stock was picked, as can be seen in the example of Sulzer below, in which its stock price chart is shown along with how our model viewed the stock on various criteria over time. This is why we often refer to our process as a “glass box” as there is full transparency throughout the process, ranging from why exactly a stock has been picked to attributing the performance ex post.
Example : SULZER
Source: Jupiter. Company examples are for illustrative purposes only and are not a recommendation to buy or sell.
How are the systematic investment criteria established?
Each of our investment criterion or rules starts with the basic yet nontrivial question: “Why should this criterion forecast future stock price movement?”. It is for example not sufficient for a stock to be cheap. A stock can be cheap due to mispricing i.e. the market incorrectly pricing the stock – perhaps due to friction in price discovery process. Alternatively, a stock could be “cheap for a reason” and yet holding such a stock might still be rewarded by a risk premium, a reward for holding a risky stock. In most cases the return to value (a systematic approach to buying cheap and selling expensive stocks) is a combination of both above schools of thought.
To find a satisfying answer to the ‘why?’ question above, our team applies scientific techniques and results from economics and statistics. When we design the rules, for example about which stocks will be classed as cheap and which as expensive, all this information is considered. Such an approach is applied to all stock selection criteria in the systematic investment process, including Dynamic valuation, Sustainable growth, Sentiment, Company management and Market dynamics. In fact, this philosophy is applied across all dimensions of the investment process from stock picking, understanding the time variation of stock picking criteria to portfolio construction and risk management.
Our systematic approach uses multiple criteria and usually stocks that are selected for the portfolios score well on more than one of them. Each criterion would have gone through a similar rigorous research process before it is incorporated into the overall model.
Source: Jupiter. For illustrative purposes only.
Treating triumph and disaster the same
Significant time and effort is put into researching, developing and enhancing new rules and criteria, with a wide variety of known and potential scenarios tested and simulated. The philosophy of our team is to be proactive and to try to answer all questions through rigorous research ahead of time, rather than reacting to current events that can cause panic. Through the lens of a specific moment in time even moderate market events can appear catastrophic – at such times humans tend to overreact, yet a dispassionate model can (to paraphrase Kipling) ‘treat triumph and disaster the same’. This is where the trust in a diligent systematic approach, refined over time, can bear fruit, offering human investing with computer help.
The value of active minds – independent thinking
Fund specific risks
- Investment risk – there is no guarantee that the Fund will achieve its objective. A capital loss of some or all of the amount invested may occur.
- Furthermore, the Fund may exceed its volatility limit. A capital loss of some or all of the amount invested may occur.
- Company shares (i.e. equities) risk – the value of Company shares (i.e. equities) and similar investments may go down as well as up in response to the performance of individual companies and can be affected by daily stock market movements and general market conditions. Other influential factors include political, economic news, company earnings and significant corporate events.
- 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 and may use techniques to try to reduce the effects of changes in the exchange rate between the currency of the underlying investments and the base currency of the Fund. These techniques may not eliminate all the currency risk. The value of your shares may rise and fall as a result of exchange rate movements.
- Stock connect risk – the Fund may invest in China A-Shares through the China-Hong Kong Stock Connect (“Stock Connect”). Stock Connect is governed by regulations which are untested and subject to change. Trading limitations and restrictions on foreign ownership may constrain the Fund’s ability to pursue its investment strategy.
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), particularly to the fund’s investment objective and characteristics including those related to ESG (if applicable), before making any final investment decisions. These are available from the document library.
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 speaker at the time of recording, are not necessarily those of Jupiter and may change in the future. This is particularly true during periods of rapidly changing market circumstances.
This is a marketing communication. Please refer to the latest sales prospectus of the sub-fund and to the Key Investor Information Document (KIID), particularly to the sub-fund’s investment objective and characteristics, before making any final investment decisions.
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. 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. Initial charges are likely to have a greater proportionate effect on returns if investments are liquidated in the shorter term.
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. The views expressed are those of the Fund Manager(s) / author(s) at the time of preparation, 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 provided but no assurance or warranties are given.
This is not an invitation to subscribe for shares in the Jupiter Asset Management Series plc (the Company) or any other fund managed by Jupiter Asset Management (Europe) Limited or Jupiter Investment Management Limited. The Company is an investment company with variable capital established as an umbrella fund with segregated liability between sub-funds which is authorised and regulated by the Central Bank of Ireland pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, as amended. Registered in Ireland under registration number 271517. Registered office: 33 Sir John Rogerson’s Quay, Dublin 2, Ireland.
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EU/EEA countries in which the Company is registered for distribution: Unless otherwise specified in this document, Citibank Europe plc (the Company’s Administrator) is responsible for processing subscription, repurchase and redemption orders and making other payments to Shareholders. Citibank Europe plc, 1 North Wall Quay, Dublin 1, Ireland, email: [email protected]
The following information and documents are available from www.eifs.lu/jupiteram: Information on how orders (subscription, repurchase and redemption) can be made and how repurchase and redemption proceeds are paid; Information and access to procedures and arrangements related to investors’ rights and complaints handling; Information in relation to the tasks performed by the Company in a durable medium; The latest sales prospectus, the articles of association, the annual and semi-annual reports and the Key Investor Information documents. The Manager may terminate marketing arrangements. Information on sustainability-related aspects are available from jupiteram.com.
Austria: Erste Bank der oesterreichischen Sparkassen AG (Austrian Facilities Agent), Am Belvedere 1, 1100 Vienna, Austria.
France: BNP Paribas Securities Services, Les Grands Moulins de Pantin, 9 rue du Debarcadère 93500 Pantin, France.
Germany: GerFIS – German Fund Information Service UG (Haftungsbeschränkt), Zum Eichhagen 4, 21382 Brietlingen, Germany.
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Italy: Allfunds Bank S.A.U., Milan Branch, Via Bocchetto, 6, 20123 Milano, Italia; Societe Generale Securities Services S.p.A, Via Benigno Crespi 19A – MAC2, Milan. The sub-fund has been registered with the Commissione Nazionale per le Società e la Borsa (CONSOB) for the offer in Italy to retail investors.
Luxembourg: BNP Paribas Securities Services, Luxembourg Branch, 60, avenue J-F Kennedy L-1855 Luxembourg Grand-Duchy of Luxembourg.
Spain: Allfunds Bank, C/ La Estafeta 6, Edi