Monthly report December 2020
Portfolio and market
The Antaurus Europe Fund (AEF) was up +2.0% in December. This brought the December closing price to €280.87. The annual return in 2020 is thus +14.7%. From its inception in 2006, the average annual net return is +7.5%.
In the fourth quarter, the AEF increased by +6.8%. This return was achieved with an average net gain of 44%. This meant that the market risk of the AEF was substantially lower than the risk of an equity investment.
Performance and risk since start
Antaurus Europe Fund (NAV)
|Performance||AEF (%)||1 month||2,0|
|Year to date||14,7|
|5 years (annualized)||8,7|
|Since start (annualized)||7,5|
|Risk analysis||1 month||5 years||Since start||Gross position (Long + Short in %)||134||136||131|
|Net long (Long - Short in %)||49||33||42|
|Beta adjusted net long (%)||34||30||37|
|Positive months (%)||57||62|
|Maximum drawdown (%)||-8,8||-20,9|
|Best monthly return (%)||8,4||11,9|
|Worst monthly return (%)||-6,0||-8,6|
The return on the broad European index (Stoxx Europe 600) was -2% in 2020. The Dutch and German stock markets recorded pluses of 6% and 4% respectively, while there were minuses in England (-12%) and France (-5%).
The AEF's average long weighting was 32% in 2020. Both beta and alpha contributed positively to the annual return.
The best performing long positions were Datwyler (medical applications), Oerlikon (industrial) and D'Ieteren (auto glass replacement and auto distribution). All long positions contributed to earnings. The short positions (a short position is a downside position that allows investors to profit from price declines. Antaurus goes short by borrowing shares to then sell them immediately. This is done with the intention of buying back the same shares cheaper in the future and then also delivering them back to the lending party) contributed positively to the returns achieved on balance. in the medical and technology sector made a negative contribution. Their business activities benefited from the social impact of the coronavirus.
Datwyler increased including dividends by 40% by 2020. Investors got excited about the company's transition from conglomerate to specialist in rubber seals. This segment has strong growth prospects, especially with its solutions for the medical industry. Moreover, Datwyler announced that the contract for Nespresso cups has been extended by as much as ten years.
Oerlikon's share price rose 66% since purchase by the AEF. AEF made the investment in Oerlikon at the time of the substantial share price drop in March. At the time, investors were fearful of a very hard fall in profitability in Oerlikon's "Surface Solutions" division, an activity through which Oerlikon is a leading player in surface treatments. Although volumes in this division did indeed fall sharply, it was clear to us early on that management was taking advantage of the crisis to cut costs substantially. We expect this strategic decision to offer potential for a strong recovery of profit margins in coming quarters. A first impetus to this was visible in the third quarter results. The other division, "Manmade Fibers," had a strong year. This division supplies production lines for manufacturing synthetic fibers. This market is a (quasi) duopoly with Oerlikon holding almost half of the market. Oerlikon is fully booked here for the next 2.5 years.
The return on D'Ieteren shares in 2020 was 10% (including dividends). D'Ieteren's most valuable activity is its auto glass replacement business, known for the Carglass brand. Despite declining volumes due to less driving, the profitability of this activity increased sharply in 2020. Indeed, D'Ieteren was able to increase its prices, helped by a larger market share of more luxurious cars with more expensive auto glass. The trend of more and more cars being equipped with the Advanced Driver Assistant System (ADAS), smart driving assistance systems built into the windshield, helps in this regard. Another dynamic that contributes positively is the fact that D'Ieteren increasingly manages to sell customers complementary products such as windshield wipers and disinfectant hand gel. Finally, the company is succeeding in significantly reducing costs. As a result of these favorable developments, D'Ieteren announced in November that its results were much better than expected by the market. Since this announcement and following positive analyst reports as a result, D'Ieteren's share price rose 30% until the end of December.
Investment Case: RELX Group
RELX Group, called Reed Elsevier until 2015, was formed from the merger of the publishing companies Reed and Elsevier in 1993. RELX is listed in both the Netherlands and the United Kingdom, and has a market capitalization of approximately €40 billion.
The former Reed Elsevier was known as one of the largest publishers of books, newspapers and scientific literature. Since then, the company has undergone a major transformation. The bulk of the 'paper' activities have now been divested; only the scientific activities are still owned by RELX. Nowadays RELX mainly focuses on offering datasets and software to analyze these datasets. These include software solutions that help banks identify money laundering, or software that helps e-commerce companies detect fraudulent transactions. RELX also helps lawyers by providing insight into historical case law.
RELX's digital businesses share a number of characteristics that we find very attractive. They deliver high-quality products that customers are willing to pay generously for, which translates into attractive margins. Much of their revenue is repetitive because software is mostly sold in subscription form. In addition, a number of RELX's activities benefit from the sharp increase in online transactions. For example, RELX's software is used to verify a person's online identity.
Another element that appeals to us is the high threshold for customers to choose a competing product. Often, end users are so dependent on RELX's software that they would have to sacrifice productivity in any switch. Also, in most end markets RELX has only a limited number of competitors with similar solutions. The high upfront investment means that the likelihood of a new competitor emerging is limited.
Finally, prepayments are made for much software, making working capital negative. Together with above-average margins, this ensures a high return on invested capital.
One division that does not deal with software development is the "Exhibitions" division. This division organizes major trade shows worldwide. In 2020, this division will be loss-making because many trade shows have been canceled due to the corona virus. It is currently difficult to estimate to what extent trade shows will return compared to the period before the corona virus. In 2019, Exhibitions still accounted for 13% of group earnings. In our valuation analysis, we conservatively take a hefty cut on future expected earnings.
The AEF has been investing in RELX since early November when the share price was trading below 18 euros. Since then, the AEF has made a return of over 10% on this investment. At the beginning of 2020, the share price was well above 25 euros. The share price has suffered because the near-term prospects for the trade show division are poor. We expect other investors to become more enthusiastic about the stock as we can put the corona virus behind us.
Strategy and outlook
A number of factors led European stock markets to rise sharply in the fourth quarter. The most important news was the approval for the use of several covid-19 vaccines. There was also the final word on the U.S. election, which was won by Democratic candidate Joe Biden. In addition, the United Kingdom and Europe reached an agreement on the terms of the Brexit in late December. Finally, the economic recovery is proceeding more successfully than expected earlier in the year.
The second half of the year saw a marked improvement in the economy, helped in particular by strong demand from Asia. Moreover, consumers are surprisingly spending more than last year. This is particularly striking in the United States. Another indication of an improving economy is the significant increase in the price of oil. It has risen by about 30% in the last two months.
Investor confidence is also driven by the ample stimulus measures put in place by governments and central banks worldwide. For example, the U.S. central bank (Fed) continues unabated with its $120 billion monthly buyback program. Moreover, the Fed's internal forecasts suggest that interest rates will remain around zero until 2023. The European Central Bank has also extended a variety of measures to ensure that ample credit remains available.
Anticipating a further economic recovery, investors currently expect corporate profits to be higher in 2021 than in 2019. However, stock prices have risen faster than the expected increase in corporate profits. As a result, equities are currently less attractively valued than in the period before the coronavirus outbreak. Given the current environment of low interest rates, equities are still fairly attractively valued.
In conclusion, the AEF remains cautiously positioned for a rising stock market with a net long weighting between 25-50%. We expect equities to be supported by the generous fiscal and monetary policies being pursued globally. In addition, the outlook for corporate earnings is better than initially thought. Current equity valuations currently prevent us from higher net long weighting.
Performance and risk since start
|Top 3 positions||Weight||Long|
|Fund size AuM (€m)||354|
|ISIN code||EN 0000 686848|
|Net long range||-50% to +75%|
|Administrator||Bolder Fund Services|
|Management Fee||1.8%, p.a.|
|Performance Fee||20%, quarterly|
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