Hedge funds have bet against Jupiter in recent months after a tough end to the year that saw its flagship bond fund lose assets amid broad market weakness.

While that weighed on pretax profits in 2018, down 7 percent to 179.2 million pounds, Jupiter said fee income had held up well at 395.7 million pounds from 392.4 million.

At 0815 GMT, shares in Jupiter were up 7.4 percent, leading the FTSE mid-cap index and on course for the best one-day gain in five years.

After an accounting change, Jupiter's capital buffer above the regulatory minimum also rose, to 182.1 million pounds against a requirement of 64.4 million pounds.

Ninety percent of its underlying earnings would be handed to investors through a total dividend of 28.5 pence per share.

Similarly, despite a rise in operating costs to 152.5 million pounds from 132.1 million pounds, steps to trim headcount by 5 percent in November and other cost cuts meant it started 2019 in leaner shape.

"In light of the mainly favourable short term news, we upgrade our recommendation from Hold to Add," said Numis analyst David McCann in a note to clients.

"We feel that a reasonable amount of shorter term uncertainty has been removed by today's update."

Outgoing Chief Executive Maarten Slendebroek said in a statement that it had been "a tough year for asset managers in general, who faced a challenging environment as market sentiment towards the sector experienced a significant shift".

The market weakness seen in 2018 also hit London-listed hedge fund manager Man Group on Friday, as it said assets fell 0.5 percent.

Slendebroek's replacement, former Janus Henderson co-CEO Andrew Formica, takes up his role from May 1.

(Reporting by Simon Jessop; Editing by Rachel Armstrong and Alexander Smith)

By Simon Jessop