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Jupiter’s Pidcock: Why I’m not worried about a global recession

09 September 2019

The manager of the Jupiter Asian Income fund says the next downturn could see investors look at the companies in his fund in the same way they look at government bonds.

By Anthony Luzio,

Editor, FE Trustnet Magazine

Jupiter manager Jason Pidcock (pictured) says he is “not worried” about the prospect of a global recession, claiming the quality and dividend-paying properties of the companies in his Asian Income portfolio could well see investors flock to his holdings in the event of a downturn rather than sell out. 

Although Pidcock’s fund has the word “income” in the title, its aim is to maximise total return to investors over the long term, with dividends playing an important role in helping to achieve this. The only income constraints on the fund are ones that the manager has imposed himself, such as a yield that is 20 per cent higher than the index, although he pointed out the type of stocks he prefers to invest in naturally pay a high dividend.

“I like companies with strong balance sheets, the ability to generate cash and that have that disciplined approach of paying dividends,” he explained. “I tend to think that they will be better performers in the long term anyway.”

Similarly, although the fund has the word “Asian” in the title, Pidcock said it is important not to mistake this as a proxy for emerging markets – 85 per cent of the fund is invested in developed markets, including 23.5 per cent in Australia, 19.6 per cent is in Hong Kong and 15.7 per cent is in Singapore.

The manager said this is because he finds businesses in these countries “are naturally lower risk, but still have room to grow”.


“I actually think they're often overlooked by other people who may consider them boring, but underappreciate what a 5 per cent dividend yield means,” he continued, adding that he tries to reduce risk for investors in every way he can think of, whether this is related to politics, currencies or even environmental concerns.

One of the ways he aims to dampen risk at the stock level is through focusing on companies with low debt levels. Of the 30 holdings in his fund, eight of them are in a net cash position, while those with a higher level of gearing tend to have greater visibility of earnings – for example, five of the companies in a net cash position are in the technology sector where he says earnings are less predictable compared with a toll-road operator, for example.

The manager said that the defensive properties in his underlying holdings and the fact that he has been looking at the same universe over the course of his 26-year career allow him to ignore swings in sentiment and the distance to the end of the current cycle.

“I'm not as worried about downturns as I think other people are, I know that they will happen,” he explained. “But I think a good company will prepare itself well, will come out the other side and will do better than its competitors. Even a global recession, I can look through that.

“I certainly think all of the companies we own would get through it and, before long, on the other side, be stronger.”

He added that when the next recession does hit, a fall in earnings for the companies in his portfolio may not necessarily lead to a fall in their share price, but could simply result in a P/E expansion.

“This is because people will see those companies as relative safe havens and still want to park money in them, in the same way that people are buying bonds now that give them negative yields.”

“So it could be a similar situation. A company like TSMC [Taiwan Semiconductor Manufacturing Company] for example, if we had a full-blown global recession, let's say their earnings came down 30 or 40 per cent. It's quite possible that the share price hardly budges because people accept that that is a cyclical situation. They'll get through it, they will survive, they have got a massive net cash position.

“And it's the same reason why you would currently own a Danish government bond. Not that I would, but other people choose to.”

There are concerns that the valuations on defensive, dividend-paying companies in developed markets have been pushed to extreme levels over the past decade or so. However, Pidcock said this is only natural in the era of ultra-low monetary policy, pointing out that you cannot look at equity valuations in isolation from other assets – particularly bonds.

“If average bond yields in a region go from 5 per cent to 2 per cent, it is absolutely reasonable that you ought to be willing to pay a higher P/E [price/earnings ratio] than before. So for my five key markets, there’s a huge spread between the 10 year government bond yield and the yield we are achieving in those markets.

“Which does say there's a lot of value in these stocks, unless you think those bond yields are going to rise significantly soon, or you think the dividends are going to be slashed. Now, I'm not expecting either of those things to occur and therefore, I still believe there's a lot of value in this portfolio.”


Data from FE Analytics shows Jupiter Asian Income has made 58.99 per cent since launch in March 2016 compared with gains of 60.12 per cent from its IA Asia Pacific ex Japan sector and 59.23 per cent from its FTSE AW Asia Pacific ex-Japan benchmark.

Performance of fund vs sector and index since launch

Source: FE Analytics

The £690m fund is yielding 3.6 per cent and has ongoing charges of 0.98 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.