Kepler Trust Intelligence: Manager change analysis

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Jupiter US Smaller Companies PLC

09 December 2020

 

Jupiter US Smaller Companies (JUS)

09/12/2020

Analysis of manager change from Kepler Trust Intelligence

The board of Jupiter US Smaller Companies (JUS) has awarded the management contract to the US small cap growth team at Brown Advisory. JUS's portfolio will be managed by Chris Berrier, who will take over in April 2021. This follows the announcement in October of the retirement of Robert Siddles of Jupiter, who has run JUS for 20 years.

Robert has had a long and distinguished career, but management is passing to a team which also has considerable experience and a solid track record. Brown Advisory has run its small cap growth strategy since the early 1990s, but its current form dates back to 2006 when Chris took over the portfolio management role. Chris brought more of a focus on downside protection and awareness of valuations to what is still fundamentally a quality growth strategy, and that has resulted in impressive absolute and risk-adjusted performance under his tenure. The Brown Advisory US Smaller Companies UCITs fund, which follows the same small cap growth strategy, has performed particularly strongly on the downside over the past five years, and has displayed a superior downside capture ratio, upside/downside capture ratio and Sharpe ratio to JUS and the other small cap US smaller companies investment trust over this period.

In a period of strong returns for growth stocks, it has also significantly outperformed its Russell 2000 Growth benchmark. Over the past ten years, the Brown Advisory US Smaller Companies UCITS fund has generated returns of 13.4% a year compared to 12.1% for the growth benchmark and just 9.4% for the Russell 2000 Index. Over the past five years the outperformance has been even higher, with annualised returns of 14.7% for the fund compared to 11.2% for the benchmark and 7.6% for the market.

Chris and the team will be running a much more explicitly growth-focussed strategy than the manager they take over from. When we met with Chris recently, he stressed that he and the team look for long-term compounders. This means companies which are market leaders or show the ability to rapidly gain market share, which have a differentiated business model that facilitates this, and which are in a large or growing market. High importance is placed on good quality, trustworthy management, with alignment of interests and incentives with shareholders. They expect these companies to show higher returns on invested capital than their peers, with incremental revenue gains from efficient use of capital or rising margins. However, Chris believes that valuation can be extremely important on a five to ten year view, and he is wary of not overpaying for the next big thing and creating excessive downside risks.

Kepler View

We believe the board of JUS have made a very interesting appointment which makes the trust an altogether different proposition. For those with a shorter-term perspective, or those seeking an entry point into US small caps, we think the double-digit discount could be an opportunity. While many stocks and funds with exposure to the US domestic economy or US small caps have rallied in recent weeks, JUS has not. In our view the appointment of a new manager could be a catalyst for a re-rating.

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