Buy, hold or sell: Jupiter High Income

Published by on 13 July 2016.
Last updated on 13 July 2016

Shaking a piggy bank to find nothing inside

The equities portion of the trio is managed by Alastair Gunn, while the fixed-interest part is overseen by co-manager Rhys Petheram.

The £499 million Jupiter High Income fund is a first-quartile performer over one, three and five years and is the highest risk of the three due to its larger exposure to equities, currently standing at 60%.


The fund aims to do what it says on the tin - generate a high income for its investors - and currently yields 4%. It therefore prizes businesses that return lots of excess capital to shareholders, and media company ITV does just that.

In October 2015 ITV paid an interim dividend of 1.9p, following that up in April 2016 with a 4.1p final dividend and a 10p special dividend. The previous year it paid a 4.7p base dividend and a 6.25p special.

The business is very cash-generative, with low debt on the balance sheet, says Gunn, 'so there's every likelihood that they're going to continue to pay these special dividends'.

Gunn bought ITV in April 2013 at around 110p, and has been 'adding quite aggressively' to his position ever since.

As well as the dividends received in that time, he has seen impressive share price gains; it currently trades at 208p, having finished 2015 as high as 277p.

The manager puts the subsequent fall down to fears of a Brexit, as television advertising demand has slowed in the run-up to the EU referendum.

However, he believes a 'remain' vote would see advertisers who tend to start the year with a pre-defined budget wanting to accelerate their spending into the second half of the year, so it will be "a year of two halves".



Motor insurance company esure floated on the stock market in March 2013 at 290p, rising to 328p by July. Not long after, though, the company issued a profit warning and saw its price tumble to around 225p.

It was at this time that Gunn began buying in, and he has been adding over time. He says the firm would have been his 'buy' choice but he now already holds a decent position.

The profit warning came at a time when the government was looking to cut down on bogus whiplash claims, which led to insurance premiums reducing by 30% in the two years to mid-2015, hurting industry profits.

esure, though, decided not to "write silly business at very low premiums", instead holding its market share at around 5% but returning the majority of its earnings and cash flow to shareholders.

"So I was effectively investing in a very rational management team who were going to pay me to wait for a turn in the market," Gunn says.

"At that 225p point, esure was yielding 8-9%, so providing the shares didn't go down I was just getting an annualised 8-9%."

With shares currently trading at 286p, the strategy paid off, and the industry has seen a "proper uptick in motor premium rates" since the fourth quarter of 2015.

"That means that I am going from a low or no-growth earnings story with a very high dividend yield, to a lower dividend where I'm invested in a growth business again."



Gunn doesn't often sell companies, which explains why he has only one stock to select for offloading: Royal Bank of Scotland.

The manager bought in at 320p in February 2015, but cut his losses around a year later at 250p. The shares have since fallen to 225p.

Gunn does believe "there is a strong chance you'll see a recovery in the banking sector", and High Income owns Lloyds Banking Group, Barclays and HSBC.

However, he says he felt less committed to RBS for a number of reasons, including the fact that it does not currently pay a dividend.

"The other issue is that it still has some wrongdoing cases to answer in the US," he explains.

"RBS today looks better capitalised than the rest of the sector, but it looks ripe for the plucking from a regulator's point of view, and we don't know how big this fine's going to be.

"My expectation is that they won't resolve the issue until the end of 2017 at the earliest, and that means I'm not realistically going to get a dividend until early 2018 at the earliest. That's just too long for me to wait."

*This interview was conducted and the article was written before the European Union referendum on Thursday 23 June.

This article was originally written for our sister magazine, Money Observer.

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