Holly Cook: Morningstar analysts rate well over 1,000 funds. I'm joined today by Szymon Idzikowski, a closed-end fund analyst here at Morningstar, and we are going to talk about one specific rating. Szymon, thanks so much for joining me.
Szymon Idzikowski: Hi, Holly.
Cook: Hi. So we're going to talk today about Jupiter European Opportunities investment trust (JEO). This is an investment trust that invests in European stocks pretty much across the range, it's quite unconstrained, and you've rated it Gold. Why is it that you have such a high conviction in this fund?
Idzikowski: Yeah, we really like the investment manager, Alexander Darwall. He's a very experienced, very talented and a pragmatic investor. He brings over 25 years of experience. We also like the fact he's been in Jupiter since 1995, and he's been at the helm of this fund since inception in 2000, which brings a lot of stability and which we believe led to the successful implementation of the process.
Cook: Okay, so you’ve mentioned the process. Why don't you tell me a little bit more about what that actually is, what's going on at the fund?
Idzikowski: Yeah. So, Alexander selects his companies from the bottom up. He wants to make sure he understands them very, very well, so he would rarely use brokers as he prefers to have a direct contact. He looks for strong fundamentals, he looks for a proven track record, management that acts in the interest of shareholders, but also companies with a dominant market position.
He has no set time horizon. If a company he likes drops in terms of market price, but his conviction remains, he actually might buy on any weakness. And he would only sell the stock if one of his key assumptions proves incorrect. So it's a very high conviction process, it's unconstrained, it results in a portfolio of 30-40 stocks characterised by strong assets in terms of countries and sectors.
Cook: So does this process of looking very closely at companies on a one-by-one basis, has that actually worked from the shareholders' point of view?
Idzikowski: It did. The fund generated excellent returns on both absolute and relative terms. It takes a bit of extra risk, but we believe shareholders are rewarded amply for that.
Cook: So, you mentioned risk, is there anything else that might raise concerns, anything you don't like about the fund?
Idzikowski: Well, unfortunately yes. We believe the benchmark is not fully representative. [The benchmark] is FTSE World Europe Ex-UK, while the fund actually invests over a third of its assets in the UK. It is a bit misleading for investors, but also it means that the performance fee is calculated against a benchmark that is not fully representative. The fund places among the cheapest quintile of its category, giving it a significant cost advantage. However, when the performance fee kicks in this advantage is eroded. Nevertheless, and that aside, we still believe this is one of the best funds to give exposure to European stocks.
Cook: So, to sum up, is it fair to say then that this is a fund that's managed by a manager that you are very impressed with; it's a process that you have high conviction in; it performs very well for shareholders; you have a few concerns over the benchmark, because it doesn’t really adequately represent what's actually going on in the portfolio; and perhaps the performance fee can actually erode some of the total returns. But overall you still think it's an excellent fund, hence your Gold?
Idzikowski: That is correct, yes.
Cook: Great. Well, thanks so much for joining me Szymon.
Idzikowski: Thanks for having me.
Cook: For Morningstar, I'm Holly Cook. Thanks for watching.
