Jupiter UK Income: August 2024 fund update

• Adrian Gosden and Chris Morrison became co-managers of the fund in April 2024

• The fund aims to generate both income and growth over the long term

• The managers have made some changes to the fund early in their tenure, selling overseas listed investments and reinvesting the proceeds in the UK

• This fund does not feature on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Jupiter UK Income fund aims to generate both income and growth and achieve a higher return than the FTSE All Share index over the long term. The fund could form part of an income-focused investment portfolio, or part of a broader portfolio looking to add investments in UK companies.

Manager

At the beginning of April 2024, Adrian Gosden and Chris Morrison became managers of this fund, replacing previous manager Ben Whitmore. Gosden and Morrison joined Jupiter in January 2024 as a result of Whitmore’s plans to leave the business.

Gosden started his career as a strategic consultant at Anderson Consulting, before joining Fleming Investment Management as an analyst. He then joined Société Generale Asset Management as a fund manager, before moving onto Artemis, spending 13 years co-managing the UK income fund. In 2017, he joined GAM and also ran a UK income fund there, before joining Jupiter in January 2024.

Morrison started his career at the Bank of Tokyo Mitsubishi UFJ Asset Management managing European equity funds during his six years with the business. In 2011, he joined GAM working on both global and UK equity funds. When Gosden joined the business in 2017, they launched a UK income fund, which they co-managed together. In January 2024, Morrison left GAM to join Jupiter.

After Ben Whitmore was replaced as manager in April 2024, we removed the fund from the Wealth Shortlist. Our conviction in the fund largely lay with Whitmore and we expect the fund’s philosophy and style to be different under Gosden and Morrison. We think Gosden and Morrison are capable and experienced investors so we will continue to monitor the fund, but we currently have higher conviction in other managers.

Process

The fund aims to generate both income and growth and achieve a higher return than the FTSE All Share index over the long term.

A key focus for the managers is the ability of companies to generate free cash flow. By understanding how cash generative a company is, they can form a view on the likelihood of a company being able to pay a growing dividend to its shareholders.

The managers also conduct research on the industries that companies operate in. This includes analysing the competitive landscape, relationships with customers and suppliers as well as the regulatory environment. Meeting with company management is also an important part of the process. This helps the managers assess the quality of company leadership, the strategy they’re employing, their approach to ESG (Environment, Social and Governance issues) and their track record of delivery.

This results in a portfolio of 50-60 investments across a range of different sectors, with around 80% of the fund invested in larger companies, and the remaining 20% in medium-sized and higher-risk smaller companies.

Since becoming co-managers, Gosden and Morrison have made some changes to the fund. This includes selling the investments in overseas-listed companies like Nokia, Ralph Lauren, Harley Davidson, Bayer and Intel on the basis that there are better opportunities in the UK. While UK equity income funds mainly invest in UK companies, up to 20% can be invested in overseas companies. Gosden and Morrison typically focus on UK companies.

One new addition to the fund as a result is utility business National Grid. The managers are optimistic on the company’s ability to lead the energy transition and provide investors with an inflation-linked dividend. They believe the shares haven’t reached their full potential with their current low valuation.

Culture

The fund managers at Jupiter are given autonomy to invest the way they see fit. They believe this will benefit investors over the long run, but this autonomy comes with an appropriate level of challenge from others in the business.

Jupiter is a listed company, traded on the London Stock Exchange. Employees’ bonuses are paid in part in deferred cash, and part in Jupiter shares which are released over time. This encourages a long-term focus, which we believe aligns managers’ goals with those of their investors.

ESG Integration

Jupiter’s approach to ESG is fund manager led, so the fund managers themselves are responsible for implementing ESG in their investment decisions. They typically approach ESG issues with a materiality-based approach, meaning they focus on ESG risks most material to each company.

The firm also subscribes to several third-party data providers (including Sustainalytics, RepRisk, ISS and MSCI) which offer information that fund managers can use in their research. Where red flags are raised, the managers investigate. Fund managers work closely with central ESG experts on ESG integration, engagement, and proxy voting and the fund managers’ commitment to these topics is a consideration in their annual appraisals.

We like that engagement is not delegated to a separate department. Instead, the fund manager who made the decision to invest in the company leads engagement activity directly, allowing more meaningful and relevant engagement. More information about the firm’s ESG policies and engagement case studies can be found in its annual Stewardship report.

The firm offers a small number of exclusions and sustainability-focused funds, including the longstanding Jupiter Ecology fund, and there is a controversial weapons exclusion applied to all Jupiter funds.

Cost

The fund has an annual ongoing fund charge of 0.94% but through HL, clients can secure an ongoing saving of 0.34%, reducing the net ongoing charge to 0.60%. Part of this reduction is paid as a loyalty bonus, which could be taxable if held outside of an ISA or SIPP wrapper. The HL platform fee of up to 0.45% a year also applies, except in the HL Junior ISA, where no account charge applies. Part or all of the annual charge is taken from capital rather than income generated, which could boost income, but reduces the potential for capital growth.

Performance

Over the last five years, the fund has delivered returns of 30.65%*, behind the FTSE All Share’s 32.37% return. However, as Gosden and Morrison only took over management of the fund in April 2024, most of this performance is attributable to the fund’s previous manager. Gosden and Morrison are value focused, contrarian investors, but have historically invested more in smaller and medium-sized companies, which are higher risk than larger firms. Past performance is not a guide to the future.

Over the last year, the fund has delivered returns of 15.50%, ahead of the 13.54% return from the FTSE All Share index. Our analysis suggests that over this period, the fund’s investments in financials businesses have aided performance, as well as having less invested in consumer staples and basic materials companies than the index. On the other hand, investments in industrial businesses proved a headwind to performance.

At the time of writing, the fund yields 4.51%. Income isn’t guaranteed, and yields aren’t a reliable indicator of future income.