Monthly report June 2021
Portfolio and market
The Antaurus Europe Fund (AEF) was up +1.1% in June. This brought the closing price in June to €295.08. The preliminary annual return in 2021 is thus +5.1%. From its inception in 2006, the average annual net return is +7.6%.
In the second quarter, the AEF increased by +2.2%. This return was achieved with an average net gain of 40%. Thus, 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||1,1|
|Year to date||5,1|
|3 years (annualized)||9,1|
|5 years (annualized)||8,1|
|Since start (annualized)||7,6|
|Risk analysis||1 month||5 years||Since start||Gross position (Long + Short in %)||137||136||131|
|Net long (Long - Short in %)||42||31||42|
|Beta adjusted net long (%)||36||28||37|
|Positive months (%)||61||62|
|Maximum drawdown (%)||-8,8||-20,9|
|Best monthly return (%)||8,4||11,9|
|Worst monthly return (%)||-6,0||-8,6|
After a strong first quarter, European stock markets continued to rise in the second quarter. The broad DJ Euro Stoxx 600 rose more than 5%. At the AEF, both beta and stock selection (alpha) contributed to returns. Short positions rose less than the stock market and thus contributed to alpha. The prices of the long positions rose harder than those of the short position (a short position is a downside position that allows investors to profit from price declines. Antaurus goes short by borrowing shares in order to then sell them immediately. This is done with the intention of buying back the same shares cheaper in the future and then delivering them back to the lending party).
The best-performing long positions were D'Ieteren (auto glass replacement and auto distributor), Datwyler (medical applications) and Partners Group (financial services). The worst-performing long position was ASR (insurer).
D'Ieteren's share price rose 24% in the second quarter, contributing the most to returns. D'Ieteren is the world leader in auto glass replacement and repair with its best known brand Carglass. D'Ieteren's share price rose sharply following better-than-expected results in 2020 and the prospect of a substantial increase in earnings in 2021. Already during the second quarter, D'Ieteren raised its profit forecast sharply. It was also announced through the press that D'Ieteren's partner is working on the sale of part of the stake of Carglass' parent company. This transaction will reveal the market value of D'Ieteren's most important subsidiary by far.
Datwyler's share price rose 12% last quarter (including dividends). In June, Datwyler announced that it will continue to expand production capacity. Demand from customers in the medical sector and also from coffee producers appears to be higher than initially forecast. Medium-term growth expectations among these customers are also incredibly strong. The payback period on such investments is three to four years, which is very attractive.
Partners Group's share price rose 18% (including dividends). We describe Partners Group's investment case in detail later in the quarterly report.
The worst performing long investment in the second quarter was ASR (insurer). After rising 16% in the first quarter, the stock lost 11% of its value in the second quarter (including dividends). There was no company-specific reason. The share prices of almost all listed insurers fell in the second quarter. The reason is that interest rates fell and the yield curve flattened. This has a depressing effect on insurers' earnings.
Investment Case: Partners Group
Partners Group is a manager of private markets investments, including private equity, private debt and private infrastructure. The company was founded in 1996 by three former Goldman Sachs bankers of Swiss nationality. Assets under management were $109 billion at the end of 2020. ' Partners Group's clients are public and corporate pension funds, insurers, banks, asset managers and high net worth individuals. The manager is committed to sustainability and provides accountability each year in a dedicated annual report. It is one of the first private markets investors, which has signed and practices the principles of responsible investment issued by the United Nations. The manager is listed in Switzerland and has a market capitalization of €34 billion (CHF38 billion).
Partners Group couples high growth with high profitability and cash flow. Assets under management, revenue and profit have grown 20% per year over the past 15 years. On three-, five- and ten-year terms, Partners Group also achieves growth rates of between 15-20%. For the coming years, the prospects for continuation of high growth are favorable. Private market managers, such as Partners Group, are benefiting from the expansionary monetary policy of Central Banks. An aging population is increasing demand for investment products. Moreover, demand for private market investments is growing faster than public markets. Investments in private markets currently amount to less than 10% of the global market capitalization of equity investments. So there is still more than enough room to continue the rapid growth of recent decades.
Another attractive feature of Partners Group is the very high predictability of earnings for the coming years. Investors in private equity funds commit for 10-12 years. During the term of the investment, the manager receives a guaranteed annual fee. Based on current assets under management, the annual management fee for the coming years will be at least CHF1.2 billion according to our calculation. Since Partners Group targets costs of no more than 40% of revenues, the profit from the management fee is also highly predictable.
In addition to the management fee, Partners Group is entitled to a performance fee. The performance fee depends on the profit on an investment. Payment is made at the end of the term of a private markets investment when the profit has actually been realized. In our estimation, the amount of the performance fee over the entire term of the investment quickly amounts to 30% of the total management fee. Currently, the conditions for company divestitures are very favorable. Since the valuations of companies in the investment years 2012-2016 were relatively low, we expect Partners Group to achieve very high performance fees in the coming years.
AEF made its first purchases in Partners Group last June at a price of CHF835. We took advantage of the price drop caused by the coronavirus to build a position. At the time of purchase, we found the valuation very attractive for a fast-growing company with no debt. Adjusted for guaranteed management fees and based on conservative estimates, the free cash flow yield at the time of purchase was 6% per share.
Since then, the prospects for growth in invested assets in private markets investments have been better than ever. Partners Group achieved 16% growth in assets under management even in the year of corona (2020). For 2021, the company expects new record inflows of new investments from clients. With the M&A market fully recovered, Partners Group will benefit from a strong increase in performance fees this year.
Due to the much improved outlook, Partners Group's share price has risen 70% since our initial purchase. As a result, the valuation has become a lot less attractive. On the other hand, we expect Partners Group to continue to surprise positively in the coming years. This is due to the strong prospects for growth in assets under management and the realization of higher-than-expected performance fees. We expect Partners Group's share price to rise further.
Strategy and outlook
Equity markets have had a very strong first half of the year. Most stock markets continued to rise in the second quarter. Investors are positive because of the rapidly improving economy, which continues to be supported by very generous fiscal and monetary policies. Inflation has been accelerating since the beginning of the year. The key question is whether or not this is transitory. Should inflation record well above the inflation target of two percent for a prolonged period, it could force U.S. and European central banks to raise interest rates.
Thanks to the progression with vaccination, most economies have largely reopened. This has created a strong economic recovery. Consumers seem eager to spend their saved capital during the coronavirus. Investors expect corporate profits to be sharply higher in 2021 than in 2019. Although the recovery continues, the peak of growth does seem to be over. Since the coronavirus outbreak, the recovery occurred first in Asia. However, economic growth has been slowing in recent months in major Asian countries such as China, Japan and India.
In addition to the strong corporate numbers, investors also feel supported by the generous fiscal and monetary policies that continue to be pursued worldwide. Most central banks continued unabated with substantial quantitative easing. ECB President Lagarde indicated at the start of the coronagraph that "extraordinary times call for extraordinary action. Since then, the European economy has recovered substantially and unemployment has fallen to levels seen in early 2018. Nevertheless, all additional easing measures announced by the ECB in early 2020 have remained in place.
In the United States, we see a similar attitude from the Fed. However, the labor market there was hit harder during the corona crisis and has shown a more limited recovery to date. In contrast, inflation in the U.S. has risen much harder than in Europe. In May, U.S. inflation reached five percent year-on-year. The Fed's inflation target is two percent. Fed Chairman Powell expects this high inflation to be temporary. If this turns out not to be the case, it would be a negative surprise for investors. Indeed, this would force central banks to raise interest rates earlier than the current expectation among investors.
In conclusion, the AEF remains cautiously positioned for a rising stock market with a net long weighting between 25-50%. The economic recovery continues globally, which is positive for the development of corporate earnings. We also expect equities to be supported by the generous fiscal and monetary policies being pursued globally. Current equity valuations are currently preventing us from higher net long weightings.
Performance and risk since start
|Top 3 positions||Weight||Long|
|Just Eat Takeaway.com||9,3%|
|Consumer staples company||4,0%|
|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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