HEAD-TO-HEAD: Jupiter versus Ninety One

123456

Investment approach

Since launching in March 2016, the Jupiter fund has tended to have a greater allocation to miners over bullion, and silver over gold, according to McDermott.

“Both these factors have made the fund more volatile and have increased risk,” he said.

The fund’s underlying philosophy is that gold is money, and manager Ned Naylor-Leyland believes gold and silver should be thought of as a currency, not a commodity.

The fund combines physical gold and silver bullion with mining shares which offer deep relative value.

The fund’s neutral position is 50:50 gold/silver, but Naylor-Leyland dynamically moves the portfolio between bullion and miners depending on his macroeconomic view and and assessment of valuations, according to McDermott.

“In a more defensive scenario, the fund will own more bullion and more gold; in a more optimistic scenario for gold and silver, the fund will have a much greater weight to miners and silver,” he said.

The fund tends to be highly sensitive to geopolitical risk and typically avoids mining companies which invest in dangerous parts of the world.

“Governance is critically important, and manager prefers a concentrated portfolio of companies whose assets are in countries where society and politics are stable,” said McDermott.

The Ninety One fund has a strong process which emphasises the importance of high returns on capital, according to McDermott.

“We also like the stress on sustainability which is built into all company models,” he said.

The manager, George Cheveley, believes that gold equities offer leverage to the gold price – so if investors believe in gold, they are better off owning gold equities. In addition, unlike physical gold, many gold miners pay a dividend and these pay-outs have been rising in recent years.

“The fund targets miners which can generate superior return on capital through the commodity cycle,” said McDermott.

The process begins with a fundamental analysis of the underlying commodity. The managers also have the flexibility to invest around one third of the portfolio in non-gold metals such as platinum, palladium, nickel or silver, he noted.

Large gold miners, such as Newmont and Barrick, are always likely to feature in the portfolio, even if they are underweight positions, but the manager still has considerable freedom to avoid weaker miners and take large active positions.

In practice, “the fund is actually very concentrated currently with around 25 holdings – although the fund’s universe is typically around 100 stocks,” said McDermott.

About two thirds of the fund is typically invested in large caps with most of the rest of the portfolio allocated to mid-caps and only a small amount in small caps.

“Both funds are naturally tied to the performance of the asset class – gold is usually the place to be going into a crisis, while silver often does well on the way out. This makes asset allocation decisions essential for both products,” said McDermott.

Top 10 holdings:

Source: Fund factsheets, 31 May 2021

123456