Digital Revolution. We have seen staggering success from Apple, Microsoft, Amazon, Facebook, Alphabet, Netflix, Tesla, Visa and Alibaba. The giant tech names have propelled the market higher, predominantly in the US and China. These tech names seem to have created monopolistic profits that people believe are permanent and do not think other companies can break into. As such there is a belief that there will be no mean reversion. If we look at the previous 4 decades at the start of the decade, the markets have been dominated by particular themes; In the 1980, of the top 10 companies, six were related to oil; 1990’s eight were related to Japan; 2000’s they were all tech names (some still thriving, some have disappeared); 2010’s companies its exposure to China and in 2020 its dominated by the tech giants. The market is assuming the 2020 picture is frozen and there will be no more disruption or change. If we look at history, typically only two of those top 10 names remain in the top 10 over the decade; and those top 10 underperform the market over the next 20 years. This time people think that will not happen and those growth companies will always win. We do not believe that this level of dominance, concentration and extremely high valuations can remain indefinitely.
Low Interest Rates. Low interest rates favour high growth companies. This is because the discount rate is lower for companies which have profits that are further out in the future, therefore assisting the valuation of growth companies. Low interest rates also assist financing for companies as the cost is lower. The current market view is that interest rates will stay low for a very long time. We believe that this is difficult to be certain about. Forecasting is inherently difficult, and we therefore cannot assume rates stay low for the very long term.
Disruptors. There is a view that there is a heightened level of disruption within the market, particularly coming from those technology names. However, we are strong believers that there has always been disruption, for example, the emergence of penicillin, computers, low cost airlines, roads, mobile telephone, and the iPhone. We have also seen the collapse of ship building, video rental and shopping centres. There has always been disruption which has created opportunities. It might feel heightened now, but it has always been there. As investors it is our job to analyse the survivability of companies and industries that have been disrupted
Our process is fairly differentiated in that we do not think meeting company management is crucial. We rather emphasise the numbers and the business as opposed to too much emphasis on the management narrative. Where we do think meeting management is absolute critical is from a Stewardship perspective, this include meeting non-executive Directors and Chairperson as strategy and views tend to be more objective and long term. So, whilst we do not have to meet all CEOs or FDs, we absolutely do want to meet management to discuss ESG and stewardship. Last year we published an article going into more depth about our approach to ESG engagement, including some case studies. This year we have engaged with 100% of our investee companies and voted at all resolutions.
Jupiter Income Trust: The Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request. All of the fund’s expenses are charged to capital, which can reduce the potential for capital growth. 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.
Jupiter UK Special Situations: The Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request. This fund can invest more than 35% of its value in securities issued or guaranteed by an EEA state. 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.
This document contains information based on the FTSE All-Share Index. ‘FTSE®’ is a trade mark owned by the London Stock Exchange Plc and is used by FTSE International Limited (‘FTSE’) under licence. The FTSE All-Share Index is calculated by FTSE. FTSE does not sponsor, endorse or promote the product referred to in this document and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading. All copyright and database rights in the index values and constituent list vest in FTSE.
This document contains information based on the MSCI United Kingdom UK Value Index and the MSCI United Kingdom UK Growth Index. Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.