Emma Wall: Hello and welcome to the Morningstar Series, 'Why Should I Invest with You?' I'm Emma Wall and here with me today is James Clunie, manager of the Jupiter Absolute Return fund.
Hello, James.
James Clunie: Good morning.
Wall: So absolute return funds unfortunately have a bit of a bad rep just because I think they are quite misunderstood as an asset class, why do you think people have this misconception about them?
Clunie: I think there are two issues; one, it's a complex area where there are many different strategies and it is very difficult to communicate clearly what those strategies are and what the risks involved are and secondly I think many absolute return funds have disappointed investors by not actually delivering what they claim to be able to do, so there is two things together, complexity and disappointment have led to that bad rep.
Wall: I suppose with a U.K. equity income fund you know what you are getting, you are investing in British listed companies that pay a dividend, but absolutely return funds can have almost anything and everything in them, can't they?
Clunie: Indeed. So for example they could be equity focused, they could be bond focused, they could be diversified, they could be long-only, looking for real return or long-short; the shorting could be individual securities or indices. So whole series different asset types and ways to structure it long or short and that means there is a great diversity and that diversity leads to the need for communication, need for an understanding of what the strategies are and what the risks might be.
Wall: I mean you have been running the fund for a year now, taking over from Philip Gibbs, how is your strategy different from his, or is it the same and what exactly is it?
Clunie: Okay, I run the fund my way and the fund is legally a global multi-asset long-short fund so anything anywhere, that's a very wide remit. What I try to do is, focus on where I've got more knowledge and more experience and that's equity long-short, within that I know the U.K. market best of all have a bit of a focus there. But effectively think of it as a global long-short equity fund with the flexibility to do other things when appropriate.
And the two times I would do other stuff, are when there is an obvious dislocation between certain asset types and that’s when I would work with my colleagues in Jupiter to actually find ideas to actually represents those anomalies or where I need to hedge against a certain situation and those other asset types can become useful. But apart from those two purposes, I tend to focus on where I think I can add value, and in particular short selling is where I think if I’ve got an edge, that’s where my edge will lie.
Wall: And you have been doing it for two decades, haven’t you?
Clunie: I love to short selling, I’ve done a lot of research into short selling at theory, looking at the theory, looking at the empirical data evidence as to what works and then actually trying to practice that and then feeding back into what we already know about shorting. So, I find it as an area where there are a lot of clues – or other guidance as to how to do it. But doing it in practice is difficult.
Wall: You said that basically the entire tool kit that’s at your disposal. At the moment with global markets looking as they do and in particularly with the U.K. slump, because you said that’s your area of specialty. Which of those tools are you using. I mean how are you positioning the fund?
Clunie: So the fund is fairly simply structured at the moment with about 50 long ideas around the world, 45 short ideas around the world and I’ve got a little bit of government bonds in the U.K. and U.S. and a little bit of gold and those – the bonds and the gold are in there as a hedge against the bad scenario, global deflationary shock and the equity long-short is me trying to add value through actually stock picking.
Wall: Does that mean then that you're sort of that awful phrase, I'm cautiously optimistic?
Clunie: No, not at all, I actually think the future is dull or at least the medium term future is dull for many asset classes, so if you think on 10-year view, you can get a much better idea of what might happen on a 10-year average view than say the next year and if I look at the valuations of equities and profit margins that companies make and try to mean revert them or moving toward something more normal, it looks as if you should expect low returns. If I look at bonds and cash and some form of property the same thing, low returns look to be what you should expect.
Now you might not get a steady stream of low returns, you might get some great returns and crashes or you might get some years of down periods followed by some recovery, who knows, but the future in general looks dull and although dull sounds like something you wouldn't want to have, it's what we've got and it's my job to try to grind out some returns in that environment and I think having the toolkit I have got gives me chance to achieve that.
Wall: James, thank you very much.
Clunie: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
