The stewardship profile of the Jupiter Merlin Portfolios is strong. We believe this strength derives from three structural advantages we have over our competitors. In summary;
• Our investment process naturally leads us to active managers.
• Rigorous monitoring and analysis of underlying fund managers allows us valuable insights into the governance of the team/company.
• The ability to benefit from Jupiter’s rich internal Governance and Stewardship culture and resource.
Our investment process naturally leads us to active managers who invest with integrity and seek to invest their clients’ capital in sustainable companies. With typically long holding periods and low turnover, the managers behave as long term owners on behalf of their unitholders. Engagement and voting are integral to their alpha generation - their raison d’etre - and increasingly, they can demonstrate the outcomes of their effective engagement. Taking all the funds held within Jupiter Merlin, 81% are signatories of the UN PRI and 80% are signatories of the UK Stewardship Code; only 3% engage in stock lending and votes were placed on 97% of resolutions of the underlying companies held within the Jupiter Merlin Portfolios (data for year end 2019, for the Unit Trusts excluding Jupiter Merlin Real Return).
Engagement, when conducted by highly selective managers running concentrated funds, can be valuable. Active managers aspire to be experts in their chosen asset classes. They scour their investment universes, deploying rigorous and disciplined investment processes to identify and invest only in companies whose share prices/bonds they believe will outperform over time. They have increasingly robust stewardship, voting and governance policies which they disclose. They demonstrate the output of their financial support and engagement with investee management teams. Corporate engagement can be extremely testing and require vast resource, cost, time and patience over many years particularly in fixed interest, but when successful, improving stewardship benefits society and the environment, whilst also releasing financial rewards to owners of company equity and/or debt. Gradually the external governance ratings improve and the ‘ESG valuation discount’ begins to close as ESG exclusionary investors are attracted and the company eventually joins the ESG indices.
The stewardship profile of the Jupiter Merlin unit trusts (ex. Real Return) would be weaker if we invested heavily in funds with very high turnover, in those using significant derivatives or leverage, in passives or AI, factor-driven strategies or in structured products. These managers often lend stock (so can’t vote without recalling stock) and invest their clients’ savings in companies simply because they are listed (passives) or because their share price displays a desired characteristic or factor (‘quant’ strategies). They are blind to the governance of the investee company or the policies it pursues; they support companies which are good, bad and downright ugly, with little or no attempt to exercise their duties as minority owners and no budget or expectation to engage.
We generally avoid managers who exclude whole sectors and/or companies with poor ESG rankings (beyond complying with European legislation to exclude cluster munitions manufacturers). Excluded companies have no imperative to improve: instead, they are at the mercy of investors who don’t engage. Yet it is invariably precisely these companies which can effect meaningful ESG change, but increasingly lack the capital and shareholder support to do so. Finally, exclusion may risk distortion of investment markets as universes become narrower (particularly in fixed interest) and companies with strong ESG rankings gain stretched multiples.
Rigorous monitoring of underlying fund managers
Please see response to SAM 02.5.
Jupiter’s rich internal Governance and Stewardship culture and resource
Jupiter employs 69 active investment professionals, assisted by 4 GS Team members who are embedded within the fund management department and 5 data analysts, all engaged in stewardship. Active management is our sole focus. Our culture is collaborative and stewardship lies at the heart of our active management. Insight into Jupiter’s stewardship heritage, manager-led stewardship structure and growing signatory status is detailed later in this RFP. However in summary, this focussed and remarkably rich seam of qualitative and quantitative expertise, supported by our forthcoming ability to assess companies held indirectly within the Jupiter Merlin Portfolios (using bottom up data) via Sustainalytics and Rep Risk, provides us with an invaluable tool to hold Jupiter Merlin underlying managers to account and gain a richer understanding of ESG risk with the Portfolios.