HEAD-TO-HEAD: Invesco vs Jupiter

123456

Investment process

Both the Invesco and Jupiter funds belong to Morningstar’s Europe large-cap blend equity category. The “blend” style means that neither growth nor value characteristics predominate in the fund, according to Caquineau.

But the funds have completely different investment approaches. The Invesco product is a quantitative fund, while the Jupiter product is a traditional fund with a manager responsible for all the stock-picking and portfolio allocation.

“The Invesco fund makes use of a quantitative model that selects the stocks,” he said.

Invesco’s quantitative model screens stocks in four different areas: earnings revisions, relative strength or how a stock price has performed in the past, management behaviour and valuation, according to Caquineau.

Within those four categories, the firm makes use of other metrics, Caquineau said, noting that Invesco does not disclose the weighting of each metric.

“It is their intellectual property and this is how they deliver alpha,” he said.

After screening the stocks, portfolio construction is done through a “mean-variance optimiser”, which looks at the volatility of the stocks and the correlation between them to minimise the volatility of the overall portfolio.

“Managing risk is a very important factor, so the [objective] is trying to limit the volatility of the fund,” he said.

The fund has no absolute volatility target, but it aims to reduce the volatility compared to its benchmark index, the MSCI Europe Index.

Although the Invesco portfolio is diversified with 100 names, it has a high active share — 83% of the portfolio deviates from the benchmark, Caquineau noted.

The fund has no strong benchmark limits. “They can run large deviations in terms of the sector and country.”

Turning to the Jupiter product, Caquineau explained that the manager, Cédric De Fonclare, makes all the calls in terms of stock selection and portfolio allocation.

De Fonclare tends to prefer growth stocks and looks at companies that are able to grow their revenues and earnings with high quality management. He also likes companies that have innovative products or services that can generate growth in the long-term, he said.

However, Caquineau noted that De Fonclare is not strictly a “high growth manager” because he looks at other opportunities on a tactical basis.

“He will sometimes invest a proportion of the portfolio in turnaround situations or invest in stocks that have low valuations.”

The Jupiter fund also has high active share – 90% relative to its benchmark index, the FTSE Europe Index.

Because of both funds’ ability to deviate from their benchmarks, both have significant allocations to mid-cap companies when compared to their peers in the category.

Market cap allocation (%)

Source: FE Analytics

For example, since the Invesco fund aims to lower volatility, it has comparatively more allocation to defensive sectors, such as consumer defensive companies, healthcare and utilities.

“The allocation to the defensive sectors is not as large as it used to be,” Caquineau noted, adding that the valuations for consumer and healthcare names have been increasing in recent years.

Turning to the Jupiter fund, Caquineau said that although the fund manager is a bottom-up stock-picker, he also looks at macro developments that can influence stocks.

“He doesn’t like companies that are tied to external factors such as commodities or oil prices.” Therefore, the fund has huge underweights in the utilities and energy sectors.

The manager sees long-term opportunities in the information technology and healthcare sectors, which explains their large allocations, he added.

Sector allocation (%)

Source: FE Analytics

123456