Jupiter UK Special Situations I

Investment Process

Whitmore is a bottom-up stockpicker who invests in large and mid-cap equities which are out of favour and trading on low valuations. His main aim is to invest where he sees value in the market, so he has no pre-set size or sector biases. However, he wants his portfolio to be as diversified as possible to lessen the risk of any sector becoming a ‘value trap’. Companies in his investment universe of 200 names are analysed through using two screens - a Graham & Dodd 10-year Price to Earnings (PE) measure looking at value and a Greenblatt screen looking at value and quality. Most PE calculations look at forecasted earnings, but by focusing on earnings over the preceding ten years Whitmore can see which securities are lowly valued over a business cycle rather than at a point in time. Whitmore also looks for ‘quality’ characteristics such as a high return on operating assets, a strong balance sheet so they can cope with unanticipated setbacks and profitability that closely matches cash flow. He also looks at a company’s capital spending, believing that one of the main causes of value destruction is making acquisitions at high prices. Despite this he believes that meeting management teams adds very little value, as chief executives rarely disclose anything more material than is publicly available. Whitmore is adamant the screening process and company analysis is more than enough to uncover most aspects of a business.