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
Juno Investment Partners is an independent asset manager based in The Hague. Juno invests in concentrated portfolios of high-quality European listed companies, often family-owned businesses or companies in which founders and directors are shareholders. The selection process emphasises predictable earnings growth, a high return on invested capital, low debt levels, strong margins and free cash flow, and a sustainable competitive advantage.
Launched in January 2008, the Juno Selection Fund focuses on small- and mid-cap European companies. The portfolio typically consists of around fifteen companies. Each is analysed intensively, and regular contact is maintained with management. The investment horizon is long, generally well over five years. Juno’s analysts, portfolio managers and employees also invest their personal capital in the JSF.
In addition to the JSF, Juno offers individually managed accounts through separate mandates, using the same investment approach. Juno holds an AIFM licence issued by the Dutch Authority for the Financial Markets (AFM).
