Juno Selection Fund: Q2 2022
Juno Selection Fund Q2: optimistic, even if the share price performance was disappointing
- Growth and profitability of underlying companies in portfolio better than expected
- Fear of rising interest rates, inflation and stagnation in the economy scares investors
- Valuations of quality companies have become more attractive after strong correction
- Resumption of physical company visits results in new additions to portfolio
The Hague, July 25, 2022
In a nutshell
In the first half of 2022, we saw share prices drop sharply by almost 24 percent. That is in line with the rest of the market: investors are currently worried about rising interest rates, inflation and stagnation in the economy. Nevertheless, there is room for optimism, because ‘our’ companies performed better than expected operationally, both in terms of growth and profitability.
After such a strong price corrections, the valuations of quality companies, precisely the companies in which Juno invests, are also more attractive. We took advantage of this opportunity, resulting in a number of nice new additions to the portfolio.
What caused this correction?
‘The sharp price declines were mainly motivated by external macroeconomic and geopolitical uncertainties’, explains member of the portfolio management team Ernest van Tuyll. Rising interest rates play an important role in this, because it has an effect on the valuation of companies. In financial models, the present value of discounted future earnings decreases when interest rates rise. Frans Jurgens, member of the portfolio management team: ‘That was also the case for a short period at the end of 2018. Anything that represents growth is not popular for a while and that also applies to the high-quality, growing companies in which we invest.’
“Operationally, our companies were doing better than expected. A number of them have upgraded their expectations for the remainder of the year.”
How are ‘our’ companies doing?
‘Operationally, our companies were doing better than expected’, says Van Tuyll. ‘A number of them have upgraded their expectations for the remainder of the year. In our selection process, we have always paid close attention to ensuring that companies can easily pass on rising costs, so that higher inflation does not affect our criterion of growing earnings by 10 to 15 percent on average per year.’ That is why Jurgens is not pessimistic about the future: ‘If corporate profits of our portfolio companies continue to increase by the 10 to 15 percent we aim for in the coming years, their share prices will eventually follow.’
Low valuations offer distinct opportunities
When quality companies are valued so attractively, it is interesting to invest in them. Jurgens: ‘As long as the earnings growth of ‘our’ companies remains as we had expected, and valuations are 20 to 50 percent lower, this decoupling between earnings growth and valuation means that we can buy companies at attractive prices. We took advantage of that fire-sale in the stock market this year. ‘In the second quarter, we added a few new names. We also selectively bought more shares in existing companies where prices were severely punished.’
The quarterly report can be found here and the most recent factsheet here.
About Juno Investment Partners
Since 2007, Juno Investment Partners has been investing in a highly concentrated portfolio of European listed companies with predictable and stable earnings growth, often family-owned businesses.
We focus on companies with a high return on invested capital, strong margins, and highly predictable (free) cash flows. These are typically companies with a strong competitive position and clear added value for their clients, enabling them to continue creating value over the long term.
Based on these characteristics, we select a limited number of companies that we want to understand thoroughly. The portfolio consists of approximately fifteen companies. These are analyzed intensively, visited regularly, and monitored over several years. The investment horizon is long, typically well over five years. Our analysts and portfolio managers also invest in the funds themselves.
Juno offers three products. The Juno Selection Fund focuses on small and medium-sized companies. The Juno Continuation Fund focuses on medium-sized companies. In addition, Juno offers individual asset management via managed accounts, using the same investment approach. The Juno Selection Fund was launched in 2008 and invests in European companies with an initial market capitalization between €250 million and €4 billion. The fund was closed to new investments for a long time and has been accessible to existing participants again since April 2023.
The Juno Continuation Fund was launched on February 1, 2020, and invests in medium-sized companies with a market capitalization between €4 and €20 billion. Here, too, the emphasis is on companies that often have family or management as co-shareholders.
Juno holds an AIFM license from the AFM.
