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Investment Trust Insider: understanding Jupiter Second Split's self-inflicted wounds
by James Carthew on May 28, 2013 at 00:01
Stock market indices in Japan, the US, the UK and many other countries have been hitting or approaching multi-year highs over the past couple of weeks. Many of the investment companies I hold have been doing remarkably well.
A broad spread of investment companies are trading at or near premium ratings and are issuing shares. Everything in the garden is rosy, except that it isn’t. We know that economic growth is faltering in many of the world’s largest economies. We know that enormous government debt that can only be serviced while interest rates remain at absurdly low levels is a problem for most of these.
Commodity price falls and persistently low freight rates seem to back up the negative story though many individual companies are trading well. Are markets deluded? Is all this exuberance merely investors intoxicated on the liquidity flowing from the various versions of quantitative easing that have been adopted in the US, UK, Europe and Japan?
Short answer – I don’t know, I am not sure anybody does. Warren Buffet was asked about QE at the Berkshire Hathaway AGM last week – his answer – it is like watching a good movie: you don’t know the ending. David Campbell, writing about the AGM on Wealth Manager put up a good graph that showed the strong correlation between the growth of the Fed balance sheet and the S&P 500 since January 2009.
Back in 2009 many investors were very concerned about the stability of the financial system and absolute return funds were in vogue. I was wary about missing the recovery from the credit crunch then but towards the end of 2010 I invested some money with Troy (in Personal Assets and the Trojan Fund ) and put some money into the geared growth shares of Philip Gibb’s Jupiter Second Split trust (JSS).
Today I am quite happy with the Troy investments; they have not kept pace with markets but they have delivered decent absolute gains with low volatility. JSS however I would categorise as one of my most disappointing investments - not because it is the worst performing but because I cannot see any light at the end of the tunnel.
JSS was the successor trust to Jupiter Split. Under Philip Gibb’s stewardship Jupiter Split grew its assets by almost 50% between its launch in May 1998 and October 2004 when it was rolled over into JSS.
In November 2004 JSS’s share capital consisted of zero dividend preference shares and geared growth shares but it also traded as package units with, initially, each package unit being 60:40 zeros: geared growth shares.
The benchmark was 75% FTSE All-Share and 25% FTSE World ex-UK. JSS performed quite well until the credit crisis hit and then the manager adopted a defensive stance which paid off as markets fell in 2008.
In 2009 JSS was approaching the end of its life and the Board put forward reconstruction proposals to shareholders. Geared growth shareholders had done well over the first five and a half years of JSS’s life (their NAV was up about 75%) and the manager said he would have a substantial personal investment in the reconstructed fund. Consequently Jupiter was able to expand the trust. However, crucially, the benchmark was changed to 3 month sterling LIBOR.
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