Juno Selection Fund remains on course in third quarter

• The Juno Selection Fund shows a flat performance over the third quarter.
• Juno opts for a prudent investment policy and wants to maintain a margin of safety when acquiring quality growth stocks.
• The fund consistently applies its long-term strategy focused on listed family-owned businesses with predictable annual earnings growth of 10% to 15%.

The Hague – October 22, 2021 – The Juno Selection Fund showed a 0% return in the third quarter , bringing the performance after the first nine months of this year to a small positive of 0.9%. The rotation to value and cyclical companies, which have been rising for almost a year on the equity markets, is pulling money away from defensive and quality stocks. The manager remains confident that, once the economy slows down, the tide for the fund may turn quickly.

For the time being, the shareprice appreciation of the companies in the Juno portfolio on average is lagging the market, even though the fund has had several very positive outliers that have risen by tens of percentages. Juno takes the long-term earnings growth of companies into account in its valuation methodology. This means that companies whose valuation have risen too high, offer too little compensation for the inherent future risks we take when becoming (part) owner of the company. That is why some of the Juno Selection Fund’s portfolio companies have been selectively reduced this year and the fund currently maintains a relatively high cash balance.

Frans Jurgens, portfolio manager Juno Selection Fund: “Since the end of 2020, cyclical stocks have been doing very well, as a result of which the share price development of our companies, on average, has lagged and our performance has been largely flat this year. There is a clear division in our portfolio with on the one hand companies that have seen their share prices rise sharply, and are reaching levels that we can no longer justify, and on the other hand companies that are now being shunned or sold by investors after several years of share price appreciation, despite their continued healthy earnings growth. The latter category is becoming more and more interesting now; if prices remain flat, but earnings continue to grow, they are getting relatively cheaper. Combined with the volatility in the markets, this provides opportunities to repurchase equities at attractive price levels and put our cash reserves back to work.”

Stock exchanges appear vulnerable

Rising levels of structural inflation may prompt central banks to raise interest rates in large steps. The economic recovery is also under pressure: container transport costs have risen exponentially, gas prices increased sixfold, semiconductors are in continued high demand and its shortages are causing temporary shutdowns of factories. These problems may dampen the economic recovery. Equity markets, on the other hand, are all set for a strong economic rebound, so in the event of a disappointing development, that disillusionment could have an undesirable effect on share prices.

Lennart Smits, portfolio manager Juno Selection Fund: “The rotation from growth to value is still ongoing and could well continue for some time. But keep in mind that this is a snapshot in time. Some of the quality companies we invest in are currently not getting the appreciation they deserve, but our firm belief is that prices will eventually follow underlying earnings growth. We are still on track with an average earnings growth of 10% to 15% for our portfolio companies. The predictability of those earnings is and remains the core of Juno’s investment strategy. This gives us confidence for the future and makes that we can largely ignore the developments in the market as a whole.” 

Juno invests in small and medium-sized European companies that offer an average earnings growth of between 10% and 15% regardless of the economic climate. That earnings growth should have a large element of predictability over the next five years. An example from the portfolio is the Danish company SimCorp, which has been a permanent fixture in the fund for almost 14 years now. SimCorp is an independent software provider for large asset managers and pension funds. The company’s software is often purchased on a subscription basis, which offers greater certainty for the longer term. In addition, the software is mission critical for their clients’ business operations, which ensures a stable client base.

The Belgian listed family-owned company Melexis was first included in the Juno Selection Fund portfolio in 2018. The company designs computer chips, mainly for the automotive industry. In the short term, the stock proved sensitive to the volatile car market, but Melexis is benefiting from the long-term trend of increasing use of chips and technology in cars. Moreover, with the current strong market demand, it has already sold its entire production capacity. Melexis now supplies eleven chips per new car worldwide compared to seven chips in 2015. The company expects to sell twenty chips per car by 2025.

The quarterly reports can be found here and the most recent fact sheet 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.