e-fundresearch: Which benchmark do you adhere to?
Darwall: The Benchmark for this fund is the FTSE World Europe index (€).
e-fundresearch: Are you also responsible for other funds at the moment?
Darwall: Yes, I also manage the Jupiter European Fund, the Jupiter European Opportunities Trust (Investment Trust) and several institutional pension funds.
e-fundresearch: What is the total volume that you manage in all your funds?
Darwall: In total the figure is about €2200m (as at the end of August 2010)
e-fundresearch: Regarding the performance: which performance did you achieve since the beginning of the year and in the years 2003-2008? Absolutely and relatively to the relevant benchmark?
Darwall: 1 January 2010 to 30 September 2010: Jupiter European Growth Fund +16.48%, FTSE World Europe index (€). +4.92%. Fund ranked 8/182
31 March 2007 to 31 Dec 2008 to 30 September 2010: Jupiter European Growth Fund +2.89%, FTSE World Europe index (€). -20.16%. Fund ranked 4/152
1 January 2010 to 30 September 2010: Jupiter European Fund + 16.15%, FTSE World Europe ex UK index (£) +1.07%. Fund ranked 1/111
31 December 2002 to 31 Dec 2008: Jupiter European Fund + 96.82%, FTSE World Europe ex UK index (£) +33.06%.
e-fundresearch: How content are you with your own performance in the last years and this year?
Darwall: It is always gratifying to out-perform and mortifying to under-perform. In the past year it has been pleasing to see that my main holdings not only delivered better profits than expected but that the market recognised this in the price of their shares, because that is not always the case.
It may be a truism but companies can only deliver the profits, it is up to the market to decide what multiple to put on these. And that varies according to the market mood, and lies outside of my control. Therefore, I am inclined to measure my performance it terms of how well my companies performed relative to what I expected them to achieve, from my own analysis of them. For example, if I thought a company might take 18-24 months to turn around but, actually, there were clear signs of improvement after 9-12 months then I would be pleased.
e-fundresearch: How are you able to deliver added value for your investors with your performance?
Darwall: The Jupiter European Growth Fund is very different to most European funds in that I do not run it as a way to “play” Europe. As such, I am not unduly concerned with index risk but I am very concerned about company risk.
I am primarily a stock-picking analyst who looks for a very specific type of company. These will have a unique product or service which gives them strong growth prospects - not only in their local markets but internationally. The fact that they are successful on the global stage means they are less likely to be affected by domestic issues.I want growth companies.
I have a clear model for the type of businesses I consider to be long term winners: they are providers of specialist products or services often protected by intellectual property rights; they command oligopolistic positions in areas of long-term structural growth. Thus they have little need to weaken their balance sheets by loading up on debt in order to supercharge pedestrian earnings. They have highly competent management teams, are not dependent on currency fluctuations, do not operate in regulated areas and are not part-owned by the French government.
I am out to invest, not to speculate. I avoid herd behaviour and remain disciplined in my approach. My focus is on understanding companies. I have long experience of understanding both the hard factors, such as economics, history, industries, finance as well as the soft factors like company culture and institutional trading behaviour. As a rule, I typically avoid banks because I consider it impossible to fully appreciate the balance sheet risks. If I cannot understand something then I will not invest in it, no matter how large a part of the index it is. I stick to my disciplined approach. In addition, I am not particularly interested in most cyclical companies and am generally underweight in commodities. If I have an advantage then it lies in an ability to understand the fundamentals of the businesses better than the average analyst. Of course, I cannot tell you when the stock market will recognise superior company performance, only that eventually it will do so.
e-fundresearch: How long have you been a fund manager already?
Darwall: I started running money in 1995 when I joined Jupiter to run the European portion of a number of segregated pension fund accounts.
e-fundresearch: What were your biggest successes and your biggest disappointments in your career as fund manager?
Darwall: I would say that a significant success to date, based on my own analysis of its prospects, was to back a company called Novo Nordisk, which makes insulin analogues. At the time this was a highly contrarian call. The standard, consensual view was that Novo Nordisk lacked the patent-protected blockbuster drugs that pharmaceutical companies typically have. I recognised that the company was not reliant on patent protection and instead competed on volume, distribution, the provision of delivery mechanisms, and branding. Today it remains a highly successful business and continues to grow.
One disappointment was Dexia, a Franco-Belgian public finance bank. This was a classic value trap where I thought I understood the business and the valuation appeared attractively low. Unfortunately, the company’s monoline insurance business in the US was hit by the credit crisis. This US exposure was far great than I, or indeed the board of Dexia, had thought.
e-fundresearch: What kind of capital market situation do we have at the moment? How do you act in this environment?
Darwall: At the moment we are operating in an artificial environment, where capital markets have been distorted by ultra low interest rate policy as the global authorities try to support Western consumption and avoid the sharp contraction in credit that we would have otherwise seen after the collapse of the global property bubble in 2008. Many companies are accumulating cash on their balance sheets and appear to be in good condition, but they remain reluctant to invest because of the current high degree of uncertainty that pervades the West.
In such an environment I continue to look for companies with long-term structural growth opportunities, especially when these can be found in areas where economic growth remains strong. The fact that the companies I invest in have performed so strongly during the credit crisis is a testament to the validity of this approach.
e-fundresearch: What are the special challenges in this environment?
Darwall: The challenge is for Western-style countries to reduce their debt levels as fast as possible without inadvertently falling into a state of austerity-induced deflation because that would increase the real debt burden. The danger is heightened by the fact that decisions are being made for political reasons rather than for economic reasons.
In the US and UK banks, companies and households are all still in the process of reducing their debts to more comfortable levels. In Europe, this deleveraging is largely confined to the banking sector. The rush to fiscal austerity that we are seeing may well be the right thing to do, but whether this is the right time to do so remains an open question.
e-fundresearch: What objectives do you have till the end of the year and in the mid term for the upcoming 3 to 5 years?
Darwall: My objective has remained unchanged. I am trying to create a portfolio of truly great businesses run by talented entrepreneurial management. These are often global businesses which just happen to be based in Europe. The country factor is irrelevant. My view of management is that they are the custodians of our capital. This notion is very important. I am happier when a business is run by a founder/entrepreneur. And this process is working. Now although company results and share prices do not always move in tandem, the share price will always eventually recognize strong business returns. That’s why an investment in my fund needs to be for the long-term.
e-fundresearch: Do you model yourself on someone? Any ideals?
Darwall: I admire many people but do not model myself on any particular person.
e-fundresearch: What motivates you in your job?
Darwall: To be proven right in my analysis and to do better.
e-fundresearch: What else do you want to achieve or do you have any further aims as a fund manager?
Darwall: My job as a fund manager and head of the Jupiter European Equities Team already holds sufficient challenges to remain highly stimulating.
e-fundresearch: What other profession would you have taken interest in, apart from becoming a fund manager?
Darwall: In truth, I never set out to be a fund manager. At university, I had my mind firmly set on being a stockbroker and the prospect of meeting and covering great companies. I joined BZW, before moving to Enskilda in Paris and finally Goldman Sachs in London. Ultimately, I decided to leave the sell side and join Jupiter in 1995 because I wanted to be able to put my investment ideas into practice.
e-fundresearch: Thank you for the interview!
Jupiter Unit Trust Managers Limited (JUTM) and Jupiter Asset Management Limited (JAM) are both authorised and regulated by the Financial Services Authority and their registered address is 1 Grosvenor Place London SW1X 7JJ. They are both subsidiaries of Jupiter Investment Management Group Limited and the group is collectively known as "Jupiter”. The above commentary represents the views of the Fund Manager at the time of preparation and may be subject to change and this is particularly likely during periods of rapidly changing market circumstances. Their views are not necessarily those of Jupiter and should not be interpreted as investment advice. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.