JUPITER MERIAN NORTH AMERICAN EQUITY FUND: ‘Man and machine’ join forces to pick the best American stocks
Earning above-average returns by investing in U.S. companies is notoriously difficult.
The US market is so tracked by investors around the world that it is difficult to find new information or a new approach that will give you an edge.
Jupiter Merian North American Stock Fund takes a unique approach in its mission to beat the average.
Every day, the team carries out an analysis of 3,000 North American stocks in which it believes there may be investment opportunities.
They then use their own custom models to reduce that number to around 200 stocks to hold in the portfolio at any given time.
Co-director Amadeo Alentorn has been at the helm for 18 years. But his role, in addition to supervising a team, also involves managing and developing a series of models and tools to carry out this carving process.
Stock picking is not done in the traditional way of manually 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 a man plus a machine,” says Alentorn. ‘The use of data eliminates subjectivity from the process. Human beings act as a safety net.’
Each action is scored based on five key pillars. These are the five characteristics that the team believes determine whether a stock will be a good investment.
The first is the assessment. However, rather than simply looking at a simple relationship between, say, a stock’s price compared to its earnings, the team uses its own model to assess value. This is designed to help ensure that you 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 the future.
It then analyzes the management team and how it is aligned with its shareholders. However, instead of going out to meet them in person, the team uses data points to evaluate management.
For example, it measures how much debt the company is taking on and whether company executives are buying or selling their own stock. The fourth pillar is sentiment, that is, how global investors feel about the company.
As Alentorn says: “There’s no point in being right about the fundamentals of a company that looks promising if the market doesn’t agree with you.” You may be right in the end, but that could take years.
Finally, they look at the price of the sector in which it is located. “Sometimes it can be more profitable to bet against the trend if valuations are already high,” says Alentorn.
However, the key to the fund’s success is the way it manages the five pillars, says Alentorn. At any given time, the pillars receive different weightings depending on market conditions at that time. This is also determined by models and algorithms rather than humans.
Not all styles perform well at all stages of the market cycle. That is why we believe that it is important to have a mix
The fund owns a comparatively large number of companies of all different styles and sectors. This is in contrast to many actively managed funds that specialize in investing in a specific type of company, for example only those that look cheap or have good growth potential.
“Not all styles perform well at all stages of the market cycle,” says Alentorn. “That’s why we think it’s important to have a mix.”
The fund closely follows its benchmark index of North American stocks and tries to deviate by only a margin of four percent at most.
For this reason, Alentorn believes the fund may be a good way to gain solid exposure to the US market. Jupiter Merian North American Equity has outperformed its benchmark index in three and five years. The fund’s stock market identification code is BMWRV87 and its ongoing annual charge is 0.95 percent.