Juno Continuation Fund: Q4 2020
Youngest Juno fund successful in first year thanks to proven risk mitigation strategy
Juno Continuation Fund withstands baptism of fire in volatile year with a 10.2% return
- Juno Continuation Fund ends first year with a 10.2% return since inception on February 1; including 2.2% in the fourth quarter.
- The European index of medium-sized companies increased by no more than 4.8% over the same period.
- In the fourth quarter, during the rotation from quality stocks to cyclical sectors, positions in some quality stocks were increased in order to take advantage of price weakness.
- The uncertainties surrounding Covid will remain high in 2021, but the companies in the portfolio are resilient thanks to the focus on balance sheet ratios and predictable earnings growth.
The Hague – January 15, 2021
After a difficult start due to the pandemic outbreak in 2020, the Juno Continuation Fund ended the year with a 10.2% return. The European index of medium-sized companies increased by 4.8% over the same period. The Juno Continuation Fund therefore had a good first year, which started on the inception date of the fund, on February 1, 2020.
The young fund uses the proven Juno strategy to select only quality companies with long-term, above-average and predictable earnings growth over a three to five-year period, with conservative financing. This strategy leads to a portfolio of robust European (mostly) family-owned businesses that are less dependent on external, economic conditions for achieving turnover and earnings growth and that have good financial buffers. Even in an extreme event such as a pandemic, these types of companies will hold their own, although the fund did part with a number of companies, because, among other things, the predictability of earnings sharply decreased.
A company like Teleperformance was able to quickly and accurately make the switch to “work from home” and was therefore able to win an above-average number of new contracts. HomeServe offers consumers insurance on home repairs. Their subscription model again proved resistant and significant growth was reported in the important North American market.
“Thanks to our strategy, we are invested in solid companies that can take a beating, even if the economic recovery takes longer than what the market now seems to be pricing in.”
The cash proceeds from sales that we made in March and April, were partly put to work again in the fourth quarter to buy quality stocks during the broad market rotation to cyclical sectors. This change in sentiment was driven by enthusiasm for the announcement of effective vaccines against Covid-19. As for 2021, uncertainties remain high, especially about the scale and speed of the recovery from the Covid crisis.
Rob Deneke, manager of the Juno Continuation Fund: “In investing, it is very important to limit the downside. Thanks to our strategy, we are invested in solid companies that can take a beating, even if the economic recovery takes longer than what the market now seems to be pricing in.
Remember, European companies will report an average earnings decline of 30% over 2020 in the coming months. The focus on stable and predictable earnings growth paid off again in 2020. In the first three quarters of last year we stayed far ahead of the market average, but in the fourth quarter, quality stocks came under some pressure. We took advantage of that situation to increase our holdings. Over the long term, our target underlying earnings growth of 10 to 15%, and over time we expect our fund’s return, is well on track.“
About Juno Investment Partners
Juno Investment Partners was established in 2007 as a fully independent fund manager and has an AIFM license (as referred to in Section 2:65 of the Wft), issued by the Dutch regulator AFM. Juno specializes in the selection of exceptional listed (family owned) companies in Europe. Companies that are able to achieve predictable and stable earnings growth year after year are considered for investment. The selection process focuses on the return on invested capital, a low debt ratio and free cash flows of a highly predictable nature. The analysts/portfolio managers compile a highly concentrated portfolio of approximately fifteen companies that they identify, analyze and visit regularly. Selected companies remain in the portfolio for a longer time period (usually more than five years). All analysts/portfolio managers have themselves invested in the Juno funds.
Juno offers three products: The Juno Selection Fund, which focuses on the selection of smaller and medium-sized listed companies, the Juno Continuation Fund for medium-sized companies and individual asset management using the same investment style, for larger clients through managed segregated accounts.
– The Juno Selection Fund was launched in 2008. This mutual fund invests in distinctive European small and medium-sized companies with an initial market capitalization of €250 million to €4 billion. In recent years, this investment style has resulted in above average investment returns for participants in the Juno Selection Fund. This fund has been hard closed for further (follow on) subscriptions since 2018.
– The same investment strategy is applied in the Juno Continuation Fund, which was launched on February 1, 2020. This fund focuses on unique, medium-sized European companies with a market value between €4 billion and €20 billion at the time of initial purchase. As is the case with the Selection Fund, the Continuation Fund also has a strong preference for investments in businesses that are family owned, or companies in which a family or management itself is also a shareholder.