JUPITER MERIAN NORTH AMERICAN EQUITY FUND: ‘Man and machine’ join forces to pick best US stocks
Making an above-average profit investing in US companies is notoriously difficult.
The US market is so trawled over by investors across the globe that it is tough to come up with fresh information or a new approach to give you an edge.
Jupiter Merian North American Equity Fund adopts a unique approach in its mission to outperform the average.
Every day, the team runs an analysis on 3,000 North American stocks where it believes there may lie investing opportunities.
They then use their own bespoke models to whittle that number down to around 200 stocks to hold in the portfolio at any one time.
Co-manager Amadeo Alentorn has been at the helm for 18 years. However, as well as overseeing a team, his role also entails managing and developing a series of models and tools to carry out this whittling process.
Stock picking is not done in the traditional mode of hand-selecting a few companies to invest in. Instead the fund uses what it calls a systematic approach, whereby decisions are made using data rather than day-to-day human decision making.
‘It’s like man plus machine,’ says Alentorn. ‘Using data removes subjectivity from the process. Humans act as a safety net.’
Each stock is given a score against five key pillars. These are the five characteristics that the team believes determine whether a stock will make a good investment.
The first is valuation. However, rather than simply looking at a simple ratio of say the price of a share compared with its earnings, the team uses its own model to assess value. That is designed to help ensure that they don’t overpay for a company.
Next, they look at growth potential – what kind of growth a company has achieved over the long term and what is expected in future.
Then it looks at the management team and how it is aligned with its shareholders. However, rather than going out to meet them in person, the team uses data points to assess the management.
For example, it measures how much debt the firm is taking on and whether the company executives are buying or selling their own shares. The fourth pillar is sentiment, in other words how global investors feel about the company.
As Alentorn puts it: ‘There’s no point being right about the fundamentals of a company looking promising if the market doesn’t agree with you. You might be proved right eventually, but it could take years.’
Finally, they look at price of the sector in which it lies. ‘At times it might be more profitable to bet against the trend if valuations are already high,’ says Alentorn.
However, key to the success of the fund is the way it manages the five pillars, says Alentorn. At any one time the pillars are given different weightings depending on the market conditions at the time. This, too, is determined by models and algorithms rather than humans.
Not all styles do well in all stages of the market cycle. That is why we think it is important to have a mix
The fund holds a comparatively large number of companies across all different styles and sectors. This is in contrast to many actively-managed funds that specialise in investing in a particular type of company, for example only those that look cheap or that have good growth potential.
‘Not all styles do well in all stages of the market cycle,’ says Alentorn. ‘That is why we think it is important to have a mix.’
The fund keeps a close eye on its benchmark of North American stocks and tries to only deviate by a margin of four per cent at most.
For that reason, Alentorn thinks that the fund can be a good way of getting a bedrock exposure to the US market. Jupiter Merian North American Equity has outperformed its benchmark over three and five years. The fund’s stock market ID code is BMWRV87 and its ongoing annual charge is 0.95 per cent.
