Jupiter’s Petheram and Gunn: UK recovery ‘more sustainable’ than US

Faisal Aziz

As data from the ONS and IMF supports signs of life in the UK economy, Jupiter fund managers Rhys Petheram and Alastair Gunn argue that the UK is ”better placed to surprise on the upside” than the US economy.

The managers of the £307.4m Jupiter Distribution fund argue that while the US recovery has been in the spotlight, the progress made in the UK economy could prove more “sustainable”.

Petheram says: “We feel the exuberance in the US economy is overdone and in fact the UK is better placed to surprise on the upside.

“There is something more sustainable about the improvement in the UK economy relative to the US.”

In particular, Petheram highlights that broad money growth in the UK is “outstripping” that of the US, despite the Fed feeding $85bn into the economy per month. The Bank of England stopped adding to its own quantitative easing programme 10 months ago.

The outlook for the UK economy sees the managers continue to take a positive view on the UK consumer to invest in both equity and some bond securities of domestic names.

A recent move has seen the fund move between assets in its holding with First Group, after initially selling out of the equity holding in March, due to concerns over dividend sustainability.

According to Gunn this went onto result in a new position in the company’s bonds. He says:  “In May the company announced a rights issue, at which point we participated in underwriting of the equity for a fee.

“We also took the opportunity to buy First Group bonds, as a rights issue highlighted management was serious about right-siding the balance sheet and improving their credit risk profile.”

The fund has also recently added a position in UK name IAG airline group, following the addition of easyJet to the portfolio at the end of last year.

However elsewhere the managers argue that the improving economic trends are making UK gilts look particularly expensive, even after yields have “moved closer to fair value”, according to Petheram.