Juno Selection Fund: Q2 2021
Focus on lagging stocks makes quality companies less popular for the time being, which offers buying opportunities
Juno Selection Fund achieves positive result in second quarter
- The Juno Selection Fund has recorded a 4.4% performance in the second quarter.
- The benchmark for European small and medium-sized companies, the EMIX Smaller European Companies Index, increased by 5.6% over the past three months.
- The quarterly performance lags the market as a result of the current investor focus on cyclical and lagging stocks, companies that the fund does not hold in its portfolio due to their risk profile.
- Juno remains committed to the strategy of investing in quality stocks with predictable earnings growth, because this provides the best investment results in the long term with an acceptable risk.
The Hague – July 26, 2021 – The Juno Selection Fund recorded a 4.4% performance in the second quarter, bringing the return over the first six months to 0.9%. The quality stocks in the portfolio underperformed the broader stock market, which is currently mainly characterized by a flow of money towards cyclical or low-priced, lagging companies.
This influx of money has a lot to do with the economic recovery and the unbridled optimism surrounding it. As interest rates remain low for the time being, more and more investors are investing their savings in the stock market. They feel empowered by price levels rising across a broad front. Over the past few months, the prices of companies that suffered a lot in 2020 have risen in particular and are now highly dependent on a further economic recovery. Many investors currently see sizable return potential in such stocks.
This focus on cyclical and lagging companies is not without risk, according to the managers of the Juno Selection Fund. It is highly uncertain whether this economic recovery, which the stock markets are now anticipating, will actually continue. Moreover, there is widespread debate whether or not the economic recovery is not accompanied by structurally higher inflation. Rising inflation can be accompanied by higher interest rates. If interest rates go up, some of these companies, with significant debt on their balance sheets, could be in serious trouble and investors will then pay the price, the managers believe.
“Many parties simply seem to want to invest their cash and, in our opinion, pay too little attention to the companies’ fundamentals.”
Predictable earnings growth remains crucial
Juno invests in small and medium-sized European companies such as Biotage, the Swedish manufacturer of laboratory equipment and supplies, and the Danish Simcorp, a software supplier to large asset managers and central banks. The fund focuses on companies that perform well regardless of the economic environment. The predictability of their earnings is at the heart of Juno’s investment strategy. In the current euphoric stock market our strategy is indeed lagging behind the market, yet the continued solid earnings growth of our companies will continue to translate into an attractive price appreciation over time. The managers of the Juno Selection Fund therefore remain confident about the future.
Frans Jurgens, portfolio manager of the Juno Selection Fund: “Share prices rose further in the second quarter, with a substantial amount of money flowing towards companies that have lagged behind and are actually not doing that well or which are heavily financed. Many parties simply seem to want to invest their cash and, in our opinion, pay too little attention to the companies’ fundamentals. Financially sound companies that show good earnings growth time and again are currently considered less desirable, and that does not go by unnoticed; the fund’s performance has lagged the market in recent months. Everything that is predictable suddenly seems boring and people are rushing to the more cyclical companies that still seem attractively priced. As long as cash continues to flow to the stock market, this strategy will work, but the tide will of course turn at some point.”
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.