Monthly report December 2021
Portfolio and market
The Antaurus Europe Fund (AEF) was up +1.2% in December. This brought the December closing price to €310.86. The final annual return in 2021 is thus +10.7%. From its inception in 2006, the average annual net return is +7.7%.
In the fourth quarter, the AEF increased by +3.6%. This return was achieved with an average net gain of 29%. 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||1,2|
|Year to date||10,7|
|3 years (annualized)||10,0|
|5 years (annualized)||7,0|
|Since start (annualized)||7,7|
|Risk analysis||1 month||5 years||Since start||Gross position (Long + Short in %)||127||136||132|
|Net long (Long - Short in %)||25||30||42|
|Beta adjusted net long (%)||34||26||36|
|Positive months (%)||61||62|
|Maximum drawdown (%)||-8,8||-20,9|
|Best monthly return (%)||6,5||11,9|
|Worst monthly return (%)||-6,0||-8,6|
European stock markets had a strong 2021. All local stock markets recorded positive returns. The broad European index Stoxx Europe 600 rose 22% (without dividends). The AEX index was the best-performing local stock market in Europe, rising 28% (excluding dividends). The AEF's average net currency weighting was 41%, so the beta contributed positively to earnings in 2021. Stock selection (alpha) also contributed substantially positively to the annual return.
Nearly 90% of the long positions contributed positively to earnings. Short positions, on balance, contributed negatively to earnings. The short positions did rise less than the stock market and thus contributed to alpha.
The best-performing long positions were D'Ieteren (auto glass replacement and auto distribution), Datwyler (medical applications) and Partners Group (financial services). The worst-performing long position was Just Eat Takeaway.com (online meal delivery).
D'Ieteren's share price rose 155% including dividends. Later in the quarterly report we describe in detail the investment case of D'Ieteren.
Datwyler's share price increased 58% in 2021 (including dividends). The sale of the less attractive wholesale business was completed in 2021. As a result, Datwyler can now fully focus on the division dealing with customer-specific sealing solutions ("Sealing Solutions"). The medical sector is the largest market in this division. Datwyler shared new financial targets for the next three years in September. These targets confirm our enthusiasm about Datwyler's future prospects. In the medical applications division, we expect to grow by more than 10% per year for several years. The division focusing on coffee cup closures also continues to grow strongly, both through its largest customer Nespresso as well as through the acquisition of new customers.
Partners Group increased including dividends by 48% in 2021. Partners Group is a manager of private investments, including private equity funds. For 2021, the company expects new record inflows of new investments from clients. As a result, income for managing assets continues to rise significantly. In addition to the management fee, Partners Group is also entitled to a performance fee. The performance fee depends on the profit on an investment. Because the merger and acquisition market is currently very active, Partners Group will also benefit from a strong increase in the performance fee this year.
With a 48% share price loss, Just Eat Takeaway.com (JET) contributed negatively to the Antaurus Europe Fund's annual result. We believe the decline this calendar year can be attributed to two main causes. First, investors' short-term earnings expectations had to be significantly revised downward as JET indicated it would invest heavily in the original Just Eat countries where Just Eat was losing market share (such as England, Australia and France). The company prefers growth to profitability because new customers are worth a lot. Once on the platform, customers rarely switch, and the net present value of a new customer is huge. Thus, the costs come before the benefits.
In addition, the acquisition of Grubhub in the United States was completed in June. Investors have been skeptical of this acquisition since the beginning because Grubhub has lost much more ground to competitors than Just Eat did. On top of that, a number of states in the United States have imposed caps during 2020 and 2021 on the commission that platforms like JET can charge restaurants. The purpose of this was to support restaurants during the covid period. This unexpectedly cost JET 150 to 200 million euros in commission fees on an annual basis. Most states have since abolished these caps, but some have not yet. These include New York and Philadelphia. These are important markets for Grubhub. JET (and its competitors) are challenging these "fee caps" through litigation. For 2022, the negative impact of the fee caps currently underway will exceed 100 million euros. This has further increased the initial pessimism regarding the Grubhub acquisition among investors.
Despite the disappointing results in the short term, we believe that the investments will create a lot of shareholder value over a period of a few years.
Investment Case: D'Ieteren
With a weighting of nearly 18%, D'Ieteren is the largest individual position of the Antaurus Europe Fund (AEF). D'Ieteren is listed on the Belgian stock exchange with a market capitalization of €9 billion. D'Ieteren is the world leader in auto glass replacement and repair with its best-known brand being Carglass. This is by far D'Ieteren's main activity. It is also the largest importer of cars in Belgium with brands such as Volkswagen, Audi, Seat, Skoda and Porsche. Since the summer, D'Ieteren has also been a shareholder of TVH Parts, a distributor of spare parts for forklifts, industrial vehicles and construction and agricultural machinery. D'Ieteren aspires to be an investment fund with a limited number of shareholdings, taking an active role to create long-term value for shareholders. The D'Ieteren family owns nearly 60% of the shares.
AEF has been investing in D'Ieteren since early 2013. Since the initial purchase, the share including dividend has increased more than fivefold from around €30 to over €170. The reason for the sharp rise in the share price is that the results achieved are far above expectations. Another reason is that a fellow shareholder of Carglass' parent company sold part of his stake to three reputable investors. The price these investors paid valued D'Ieteren's stake in Carglass' parent company at around €160 per share. This was well above investors' expectations.
Despite the sharp rise, Antaurus remains enthusiastic about the share price potential of D'Ieteren shares. The main reason is the favorable outlook for sales and earnings growth in the Carglass business. This growth is driven by the trend toward larger car windows with more technology. These car windows are increasingly equipped with so-called driver assistance systems, or ADAS (Advanced Driver Assistance Systems). Using cameras behind the windshield, these ADAS systems support the driver while driving. Due to the trend toward larger car windows with ADAS systems, the price of replacing a car window is rising sharply. In addition, it is mandatory to calibrate, or recalibrate, the ADAS systems after replacing a car window with a camera. Calibration services generate substantial additional sales and profits. Currently, the number of auto glass replacements where calibration is required is only 22% of the total. Since almost all new cars are equipped with ADAS, this percentage will increase rapidly. As a result, we expect the sales and profits of the Carglass business to continue to increase significantly over the next decade.
Another reason for our enthusiasm is the fact that three reputable investors have recently taken stakes in D'ieteren's Carglass business at a high valuation. Together with the private equity parties, we expect D'Ieteren to create a lot of value in the coming years. A return on invested equity of 100% in five to seven years, as often demanded by private equity parties, seems realistic. This would mean that the value of D'Ieteren's stake will also double to a value of more than €300 per share. This possible value development is consistent with the analysis we have done regarding Belron's expected earnings growth over the next five years.
AEF has held a stake in D'Ieteren since early 2013. The last time we increased the stake was in November 2020 at a price of €56. Despite the sharp price increase since then, we believe the stock has the most attractive risk-return profile within our universe. D'Ieteren combines high predictable earnings growth with an attractive valuation. We also find confirmation of our analysis as we "co-invest" in the Carglass business with some of the world's most reputable investors.
Strategy and outlook
European stock markets have had a solid fourth quarter. Rising inflation and the announced unwinding of central banks' hefty buying programs have so far not affected investor confidence. The debt problem in China's heavily financed real estate market, which has already resulted in several bankruptcies of property developers, is, for the time being, seen as a problem purely limited to China.
The global economy has recovered smoothly from the blow caused by the coronavirus. This is partly because historically large monetary - and fiscal support programs were put in place in most countries. Growth is also expected to continue in 2022. Economists estimate that economic growth this year will be over 4% in the United States and over 2% in Europe.
Meanwhile, inflation continues to rise worldwide. The latest figures point to inflation near 5% in Europe and near 7% in the United States. US central bankers have since indicated that they no longer believe the current high inflation rates are primarily due to some temporary effects, such as current disruptions in global production and supply chains. The European Central Bank does maintain that the current high inflation rates will decline sharply next year.
High inflation prompted the central banks of Europe (ECB) and the United States (Fed) to announce in December that they would start winding down their monthly buying programs. The Fed bought up $120 billion worth of loans almost every month during 2021. This will be phased out by about 15 to 30 billion each month over the next few months, bringing the program to an end in March. During 2021, the ECB bought over 90 billion euros a month of debt securities on average. Although the ECB will continue this for the first three months of 2022, by April the monthly amount will be phased out in two steps to eventually 20 billion per month starting in October. With this, the very generous monetary stimulus seems to be slowly coming to an end. Policy rates do remain unchanged low for now, although Fed members expect to raise interest rates in three steps later in 2022.
Business, meanwhile, is suffering from high inflation. Costs for raw materials, personnel and logistics continue to rise. This puts pressure on companies' profit margins. Consequently, for a lot of companies, profit margins appear to have peaked in the first half of 2021. Therefore, despite continued economic growth, we expect the potential for earnings growth at many companies to be limited in 2022.
Therefore, in line with recent quarters, the AEF remains cautiously positively positioned with a net gain of about 25%. The economic recovery continues globally, but growth appears to be slowing. The debt problems in China's heavily debt-financed real estate market could indirectly cause further growth weakening. Corporate earnings growth prospects are limited given the highly inflationary environment. Monetary policy is still stimulative, although it looks like this will end in the next six to 12 months. We think current equity valuations are on the high side in that light. We notice a huge difference in valuations between sectors and companies. Some sectors such as technology and industrials are at record levels. But there are also sectors, such as food and telecom, that are actually very attractively valued. AEF's long-short strategy lends itself ideally to taking advantage of the large differences in valuations between sectors and individual stocks.
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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