Combining GEAR with WEF: the benefits of diversification
When building portfolios, investors face not only the problem of selecting the right investments, but also that of combining them in the right way. Do the Jupiter Merian Global Equity Absolute Return Fund (GEAR) and the Jupiter Merian World Equity Fund (WEF) overlap?
The two funds are managed by the same team and have the same core investment engine, but their return streams are very different because they are constructed quite differently. GEAR is a market-neutral fund. It holds a long and a short book in balance. It does not express a directional view on the market. GEAR’s returns come from alpha, not market beta. WEF, by contrast, is a long-only global equity fund. It has only a long book and its correlation with global equity markets is high. Returns come from a combination of market beta and alpha.
Both GEAR and WEF have enjoyed strong performance in recent years. GEAR (I USD Acc) returned 14.0 percent over one year, 43.2 percent over three years, and 72.9 percent over five years, as at 30 September 2026. WEF (I USD Acc) returned 19.1 percent over one year, 94.9 percent over three years, and 93.8 percent over five years, as at 30 September 2026.
Diversification benefits
The analysis below shows that combining GEAR and WEF has provided diversification benefits over the past decade.
We constructed three hypothetical portfolios, combining different weights of the two funds and the Bloomberg Global Aggregate Index, an index of global investment-grade bonds, hedged into USD (shown as “Bonds” below).
Portfolio 1: 60 percent WEF, 40 percent Bonds, 0percent GEAR
Portfolio 2: 60 percent WEF, 20 percent Bonds, 20percent GEAR
Portfolio 3: 60 percent WEF, 0 percent Bonds, 40percent GEAR
Source: Jupiter. For illustrative purposes only.
Summary statistics for the underlying constituents and the three portfolios over the 10-year period to 30 September 2026 are shown in the table below.
|
WEF (I USD Acc) |
GEAR (I USD Acc) |
Anleihen (Global Agg) |
MSCI World NR |
Portfolio 1 |
Portfolio 2 |
Portfolio 3 |
|
|
Annualised return |
13.97 percent |
6.73 percent |
1.61 percent |
12.81 percent |
9.13 percent |
10.25 percent |
11.37 percent |
|
Annualised volatility |
15.18 percent |
5.12 percent |
4.01 percent |
14.81 percent |
9.89 percent |
9.51 percent |
9.31 percent |
|
Sharpe ratio |
0.75 |
0.82 |
−0.22 |
0.69 |
0.67 |
0.81 |
0.95 |
Source: Morningstar, Jupiter, 30 September 2026. 10 years, USD. Funds net of fees; index gross of fees. Portfolios rebalanced to target weights monthly, with no transaction costs assumed. USTREAS Federal Funds annualised return 2.5 percent. Portfolios are hypothetical. Past performance does not predict future returns.
Over this ten year period and over these market conditions, Portfolio 3 (60 percent WEF, 40 percent GEAR) provided both the highest return and the lowest volatility of the three portfolios. It also achieved a Sharpe ratio higher than either fund on its own. This is a textbook sign of achieving the benefits of diversification by combining two assets that are very different from each other. GEAR’s monthly correlation with WEF over the 10 years shown was about zero.
While bonds did provide some diversification from equities, they provided less than GEAR during this period.
The frontier analysis below shows that over this historical 10-year period holding 20 percent or 40 percent in GEAR shifted the WEF/Bonds line (of the realised risk-return frontier) upwards and to the left (higher return with lower volatility).
Source: Morningstar, Jupiter, 30 September 2026. 10 years, USD. Funds net of fees; index gross of fees. Portfolios rebalanced to target weights monthly, with no transaction costs assumed. Portfolios are hypothetical. Past performance does not predict future returns.
Seeking diversification from equities
Fixed income has traditionally been relied on for diversification from equities, although that role has come into question because the correlation between equities and bonds is not stable. According to Ibbotson, the 10-year correlation between US stock and bond returns has varied substantially over time and has often been positive.1 For much of the 1980s, the correlation was around +0.3 or +0.4 (correlation is measured between −1.0 and +1.0). Around the turn of the century, it fell sharply and became negative, remaining so for much of the 2000s and 2010s, only to rise rapidly and become positive by the end of 2023. The analysis above suggests that combining GEAR and WEF in a portfolio provided good diversification benefits over this period, superior to combining WEF with bonds.
1 Roger G. Ibbotson, “Exponential Wealth: Centuries of Stock and Bond Returns”, CFA Institute Research Foundation, 2026, page 180, Exhibit 10.4.
Jupiter Merian Global Equity Absolute Return Fund
Fund Risks
Pricing risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
Derivative risk - the Fund may use derivatives to generate returns and/or to reduce costs and the overall risk of the Fund. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment.
Counterparty Default Risk - The risk of losses due to the default of a counterparty on a derivatives contract or a custodian that is safeguarding the fund’s assets.
ESG - Investments are selected or excluded on both financial and nonfinancial criteria. The Fund’s performance may differ from the broader market or other Funds that do not utilise ESG criteria when selecting investments.
Charges from capital - Some or all of the Fund’s charges are taken from capital. Should there not be sufficient capital growth in the Fund this may cause capital erosion.
Stock Connect risk - Stock Connect is governed by regulations which are subject to change. Trading limitations and restrictions on foreign ownership may constrain the Fund’s ability to pursue its investment strategy.
ESG Data - The Fund uses data from third parties (which may include providers for research, reports, screenings, ratings and/or analysis such as index providers and consultants) and that information or data may be incomplete, inaccurate or inconsistent.
For a more detailed explanation of risks, please refer to the “Risk Factors” section of the prospectus.
Jupiter Merian World Equity Fund
Fund Risks
Currency (FX) Risk - The Fund can be exposed to different currencies and movements in foreign exchange rates can cause the value of investments to fall as well as rise.
Pricing risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
Market Concentration Risk (Geographical Region/Country) - Investing in a particular country or geographic region can cause the value of this investment to rise or fall more relative to investments whose focus is spread more globally in nature.
Derivative risk - the Fund may use derivatives to reduce costs and/or the overall risk of the Fund (this is also known as Efficient Portfolio Management or “EPM”). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the Fund.
Counterparty Default Risk - The risk of losses due to the default of a counterparty on a derivatives contract or a custodian that is safeguarding the fund’s assets.
ESG - Investments are selected or excluded on both financial and nonfinancial criteria. The Fund’s performance may differ from the broader market or other Funds that do not utilise ESG criteria when selecting investments.
ESG Data - The Fund uses data from third parties (which may include providers for research, reports, screenings, ratings and/or analysis such as index providers and consultants) and that information or data may be incomplete, inaccurate or inconsistent.
For a more detailed explanation of risks, please refer to the “Risk Factors” section of the prospectus.
Important information
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