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Jupiter Merian Global Equity Absolute Return Fund

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Talking factsheet: Global equity absolute return strategy

Amadeo Alentorn gives an overview of Jupiter’s global equity absolute return strategy, how the investment process works, and how the team seek to generate alpha.

THE NEED FOR DIVERSIFICATION AND LOW VOLATILITY

In times of market volatility, diversification across traditional asset classes may fail to deliver the benefits many investors expect. When both equity and bond markets fall in the same period, many investors’ portfolios – which they may have hoped had been diversified – can be exposed to losses. Diversification is hard to find when global equities and bonds fall together. When traditional assets correlate in a downward trend, it can seem to investors that there is nowhere to hide.

Alternative strategies with the potential to deliver positive returns irrespective of the market environment or macroeconomic backdrop, and with low or negative correlations with traditional equity and bond markets, are therefore of interest.

The Jupiter Merian global equity absolute return (GEAR) strategy has historically enjoyed low correlation both to global equities and to global bonds (see “ Low correlation” under “7 reasons to consider our systematic approach”).

As well as uncorrelated returns, protection from high volatility is also important in stormy waters. The GEAR strategy targets an annualised volatility limit of just 6% (see “Low volatility” under “7 reasons to consider our systematic approach”).

Jupiter Merian Global Equity Absolute Return Fund (GEAR) has received The Hedge Fund Journal’s UCITS Hedge award for Best Performing Fund over one, two and three years ending in December 2022, in the Equity Market Neutral Global – Quantitative strategy category, based on risk-adjusted returns.

Whereas venture capitalists, and some types of “growth” style investors in public equity, may expect a few winners to make up the majority of returns, in quant equity the objective is to be firing on all cylinders over a multi-year cycle.

7 REASONS TO CONSIDER OUR SYSTEMATIC APPROACH

1. LOW CORRELATION

The correlation of the strategy with global equity markets has been historically low on average.

3 month rolling correlation of the Jupiter Merian Global Equity Absolute Return strategy with the MSCI World Index

Past performance is no indication of current or future performance. Source: Jupiter, as at 30.06.2022. Updated on an annual basis. Three month rolling correlation with MSCI World index.

The correlation of the strategy with global bond markets has also been historically low on average.

3 month rolling correlation of the Jupiter Merian Global Equity Absolute Return strategy with the Bloomberg Global Aggregate Index

Past performance is no indication of current or future performance. Source: Jupiter, as at 30.06.2022. Updated on an annual basis. Three month rolling correlation with Bloomberg Global Aggregate index.

2. LOW VOLATILITY

The volatility of the strategy has historically been much lower than global equity markets.

The strategy has had well managed volatility, typically remaining below the 6% targeted limit

Past performance is no indication of current or future performance. Source: Jupiter, as at 30.06.2022. Updated on an annual basis. Rolling volatility of the strategy.

Volatility of MSCI World Index

Source: Jupiter, as at 30.06.22. Updated on an annual basis.

3. MARKET NEUTRAL

How is diversification from global equities achieved? The strategy seeks low correlation by careful portfolio construction, holding long and short positions in balance. A market neutral strategy, it seeks to generate returns from alpha, not beta.

The strategy seeks positive returns in both up and down equity markets

For illustrative purposes only.

The strategy is market neutral, holding a long equity book and a short equity book in balance. In a down market, the short book may make a positive contribution even if the long book is negative. In an up market, the long book may make a positive contribution even if the short book is negative. When one book is positive and the other negative, the relative difference between them determines the strategy’s return.

4. A TRULY DIVERSIFIED PROCESS

Our investment process includes, as components within it, five main proprietary stock selection criteria.

The power of our investment process is enhanced when different stock selection criteria agree on the same stock. We work hard to ensure that each of the five criteria is independent from the others, as this increases diversification and reduces risk.

5. CONTINUOUS MONITORING OF THE MARKET ENVIRONMENT

The team has a unique approach to stock selection. It is a systematic approach, based on continuous observation of the market environment. The graph below shows how market sentiment had by March 2022 become almost as pessimistic as it was when the COVID pandemic was declared in March 2020.

Risk environment and Market sentiment are proprietary measures developed by the team. Source: Jupiter, as at 31.03.22. AP=Asia Pacific, EM=Emerging Markets, EU=Europe, JP=Japan, NA=North America.

6. AN EVIDENCE-BASED APPROACH

Unlike discretionary equity strategies, the team employs an evidence-based approach to security selection. Rather than employing traditional analytical techniques, such as manually scrutinising company annual reports, meeting management teams, and studying by hand third-party analysis, the strategy uses computer-based techniques to analyse huge volumes of publicly available information, assessing global stocks against a number of stock selection criteria.

7. CONTINUOUS ENHANCEMENTS

The investment process employed by the systematic equities team was implemented in early 2009 and is continuously refined. Recent enhancements are shown below.

SYSTEMATIC EQUITIES RANGE

Long only strategies

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Long only strategies covering these regions

Asia
Europe
Europe ex UK
Global
Global Income
North America
Pacific
World

Long-short strategies

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Long-short strategies

Global equity absolute return strategy

Our systematic equities investment process is applied to both long-only and long-short strategies. All are based on the same core process.

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 marketing 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. These are available from the document library.

Meet the team

Systematic Equities Team

Amadeo Alentorn

Investment Manager, Systematic Equities

Sean Storey

Investment Manager, Systematic Equities

Tarun Inani

Investment Analyst, Systematic Equities

Yuangao Liu

Investment Manager, Systematic Equities

Matus Mrazik

Investment Manager, Systematic Equities

James Murray

Investment Manager, Systematic Equities

Literature

Click the button below to download all fund literature of Jupiter Merian Global Equity Absolute Return Fund.

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