We’ve left September behind and moved into October. Traditionally this is bad for the weather but good for stocks. I’m hoping so and things are beginning to look more positive. The scores of the shares on my watchlist are starting to tick up higher due to positive news and some share prices hitting new highs. 

Given a lot of my watchlist is looking promising at the moment, I’ve decided to cast my net wide in taking new opportunities. The idea is then to monitor how they perform, ditch any that don’t live up to the promise and reinvest into the ones that do. Last week I bought small positions back into some long term favourites: On the Beach and Burford Capital, where the prices look to have bounced. I also bought RWS on Friday as it issued a very positive trading update. I bought a new position in Jupiter Fund Management – more on this below. I’ve written about the others recently before, so won’t again here.

This buying has used most of the excess cash I was holding in my portfolio and has resulted in 17 positions. I started to follow the process of cutting the losers and reinvesting by selling what looked like the weakest position, JD. Sports, for a 5% loss.

Jupiter Fund Management

Jupiter is a medium sized asset manager which provides various equity funds and investment trusts for predominantly UK investors.

Quality

I think Jupiter is a high quality business:

• Business economics: as an asset manager, Jupiter has very high margins and returns on capital. It is very profitable and doesn’t really need to spend much to grow. It generates a lot of cash and pays a big dividend. The business economics are very attractive.
• Track record: Jupiter has a good track record, having grown fairly steadily in profits and in share price for the last few years since it listed in 2010.
• Competitive advantage: the asset management sector is competitive with new funds being set up fairly frequently and customers having little difficulty in switching between funds. While fund managers can derive some competitive advantage from their brands, in most cases advantages seem fairly transitory. A lot of the selling proposition relates to the quality of the staff and the staff can come and go. I don’t think that Jupiter has a very long term competitive advantage if I’m honest – it just seems to be doing well at the moment. I think Jupiter’s other characteristics make up for this.
• Growth prospects: based on its recent progress I think Jupiter’s growth prospects look reasonable. It is not that large a business yet and should still have plenty of room to grow. Jupiter’s performance is likely to be fairly correlated with that of the wider stock market. I’m happy to have some cyclical exposure.

Pricing

Jupiter’s last trading update was good and the share price is near its highs. The valuation seems very reasonable to me and the large dividend is an added bonus I don’t normally get with the sort of shares I invest in.