Our Jupiter Origin team has been investing in global smaller company equities for over 15 years. We use a well-defined, active approach that is designed to produce investment outcomes with highly consistent style characteristics, and which we believe can lead to outperformance over time.
We think it’s an opportune time to be investing in global smaller companies, which we see as a core holding in a well-diversified investment portfolio. On conventional valuation measures global small cap stocks are trading at a significant discount to large cap peers.
We view current economic conditions as supportive for high-quality, small cap growth stocks. Smaller companies tend to outperform large company shares over the long term, and while that has not been the case in recent years, we would expect small cap performance vs large caps to return to the norm over time.
We also believe that a global approach to smaller company investing, including emerging as well as developed markets, offers additional benefits for diversification of returns, while a flexible regional allocation can offer broader opportunities.
Collaboration and trust
We are a small, seasoned team with a collaborative approach that fosters deep alignment and trust, enabling clarity and efficiency in decision-making.
As investors, we are looking for smaller companies with four characteristics:
- Superior profitability and growth: History of high return on investment and asset growth
- Attractive relative value: Shares discounting much lower future profitability
- Earnings estimate upgrades: Consistent upgrades in analyst EPS estimates
- Price momentum: Share price strength vs market average and moving averages
As a result, our portfolios tend to tilt toward above-average returns and earnings and sales growth, reasonable valuations and strong current share price momentum.
To illustrate this, the chart below shows the how the strategy compares with the global small cap benchmark across a range of metrics. These are measured in standard deviation terms.
Style characteristics, Jupiter Origin Global Smaller Companies Strategy
The investment process, which we have developed and refined over many years, applies the team’s collective judgment to the evidence. We don’t make forecasts on a company or macro level, and we seek to avoid opinion and psychological bias, ensuring investment decisions are repeatable and transparent.
First, we screen and rank a universe of around 5,000 smaller company stocks on the four characteristics -- a stock must score well on a balance of all four to be included in the portfolio. We then undertake a due diligence process with each team member reviewing and ordering a list of high scoring stocks for potential inclusion according to their preference.
High conviction and best ideas
Combining the individual rankings creates the team list which forms the basis of that quarter's trading decisions. We identify the sell candidates and use cash raised from sales to invest in the best new ideas or to top up existing holdings. The end result is a portfolio of around 200 stocks that fully reflects our convictions.
We don’t meet company management -- we prefer to analyse the data rather than rely on a CEO’s handshake, and we wouldn’t have time to meet 200 CEOs anyway.
We are neutral about sectors and geographies; these will tend to change as market and macro conditions change. However, highly capital-intensive sectors such as airlines, chemicals and energy tend to have lower profitability and rarely score well. We tend to be underweight those sectors.
Large, rich pool
We see richness of opportunity investing across such a large pool of companies, sectors and countries. The MSCI small cap index includes around 5,000 companies in 24 developed market and 23 emerging market countries.
Small cap companies are often younger businesses with higher potential for growth but they can also be more volatile compared with larger corporations. Smaller companies can generate substantial returns when successful but can be susceptible to sharp price rises and declines.
Active investment management -- careful analysis and selection are paramount in this sector. We believe a portfolio of 200 stocks offers diversification and downside protection that a smaller portfolio cannot, and, as we noted, we think that investing on a global basis, in emerging and developed markets, offers potential for uncorrelated returns within a portfolio.
We see good potential opportunities in global smaller companies investing. Our approach to the asset class is grounded in clarity, evidence and consistency. We believe the result is a strategy with characteristics that clients can understand and rely on.
Strategy risks
- Company shares (i.e. equities) risk - The value of Company shares 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.
- 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.
- Smaller companies risk - Smaller companies are subject to greater risk and reward potential. Investments may be volatile or difficult to buy or sell.
- 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.
- 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.
- Liquidity Risk (less liquid securities) - Some investments may be hard to value or sell at a desired time and price. In extreme circumstances this may affect the strategy’s ability to meet redemption requests upon demand.
- ESG - Investments are selected or excluded on both financial and non-financial criteria. The strategy’s performance may differ from the broader market or other strategies that do not utilise ESG criteria when selecting investments.
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 is a marketing communication. Please refer to the latest sales prospectus of the sub-fund and to the Key Investor Information Document (KIID) (for investors based in the UK) and Key Information Document (KID) (for investors based in the EU), particularly to the sub-fund’s investment objective and characteristics including those related to ESG (if applicable), before making any final investment decisions.
This material 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.
Information in this material has been obtained or derived from sources believed to be reliable and current. However, accuracy or completeness of the sources cannot be guaranteed.
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Past performance does not predict future returns.
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