Juno Continuation Fund: Q4 2021
Many stocks’ valuations very high at the moment
Juno Continuation Fund sees euphoria disappearing from the market
- Underlying earnings growth of the portfolio above expectations in 2021
- Fund lagged the market in 2021 due to popularity of riskier stocks
- Physical company visits finally possible again
- Quarterly reports: focus on Scout24, ICON, Teleperformance, JustEatTakeaway and Temenos
The Hague – January 31, 2022 – The Juno Continuation Fund considers stock market valuations to be high at the moment and sees the first signs that the euphoria in the market is coming to an end. The fund, which invests in companies with predictable, high annual earnings growth and defendable market share, has struggled to find shares of high-quality companies at reasonable valuations. As a result, the fund’s cash position at the end of December 2021 was relatively high.
In 2021, the Juno Continuation Fund achieved a return of 5.4%. The fund underperformed the MSCI Europe Mid Cap Index, which ended the year with a performance of 21.6%. According to Rob Deneke, member of the portfolio management team, there was too little focus on risk and longer term considerations over the past year: “The largest share price gains in the broader equity markets have been realised in sectors where the risk is significant. As a result, the type of companies in which we prefer to invest, with predictable and regular earnings growth, is slightly less popular at the moment. This is disappointing as the fund’s portfolio companies showed continued good earnings growth of around 20% in 2021. It is also important that these (family-owned) businesses have little or no debt and can grow independently.”
“As an investor, it is better to stick with those companies that really create economic value, rather than stocks that are only a mere promise for the future.”
Deneke finds it remarkable that there are practically no analysts who sound warnings about the current valuations in the stock markets. “Who is still mentioning price-earnings ratios? In such a market it is really important to be in stocks that have ‘content’ and are able to grow their earnings systematically for the coming years. As an investor, it is better to stick with those companies that really create economic value, rather than stocks that are only a mere promise for the future.”
Making company visits again
“Knowing what you are buying, doing thorough research and physically visiting companies is essential to our investment style, so we are excited to have many physical company visits again in 2022,” said Duncan Siewe, member of the portfolio management team.
In 2021, the Juno Continuation Fund took a position in Scout24, the German equivalent of Funda in the Netherlands or Zillow in the US. Juno has been following this company for some years and the share price showed a weak trend in 2021. This made it possible to build up a position at a reasonable valuation. Juno finds Scout24 promising because of the growth, the high operating EBIT margin (>40%) and an ever-innovative product range for real estate agents, consumers in the rental segment and home owners.
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.