Monthly report September 2021
Portfolio and market
The Antaurus Europe Fund (AEF) was down -1.1% in September. This puts the September closing price at €299.99. The preliminary annual return in 2021 is thus +6.8%. From its inception in 2006, the average annual net return is +7.6%.
In the third quarter, the AEF increased by +1.7%. This return was achieved with an average net exposure of 50%. 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||6,8|
|3 years (annualized)||7,7|
|5 years (annualized)||7,3|
|Since start (annualized)||7,6|
|Risk analysis||1 month||5 years||Since start||Gross position (Long + Short in %)||136||136||132|
|Net long (Long - Short in %)||50||31||42|
|Beta adjusted net long (%)||36||27||37|
|Positive months (%)||61||62|
|Maximum drawdown (%)||-8,8||-20,9|
|Best monthly return (%)||6,5||11,9|
|Worst monthly return (%)||-6,0||-8,6|
Stock prices in Europe were slightly positive on average in the third quarter. The broad DJ Euro Stoxx closed unchanged. The AEX was a positive outlier in Europe, rising nearly 6%, while the Swiss stock market fell more than 2%.
As European stock markets averaged a slightly positive return in the third quarter, the net long weighting of 50% (beta) contributed minimally to the result. The AEF's return in the past quarter was achieved primarily due to a strong contribution from stock selection (alpha). Long positions contributed positively to last quarter's return. Short positions contributed negatively to the returns achieved.
The best-performing long positions were D'Ieteren (auto glass replacement and auto distributor), ASR (insurance) and Datwyler (medical applications). The only performing long position was Just Eat Takeaway.com.
D'Ieteren's share price rose 25% in the third quarter, contributing most to returns. D'Ieteren is the world leader in auto glass replacement and repair with Carglass as its best-known brand. D'Ieteren's share price rose sharply as a co-shareholder of Carglass' parent company sold part of its 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 much higher than expected. As a result, D'Ieteren's share price rose from €102 to €127 in the third quarter.
ASR's share price rose 23% (including interim dividend). The insurer published strong half-year figures. ASR had to pay out fewer claims because, among other things, fewer cars were driven now that people work more from home. In addition, profitability of disability insurance was higher due to price increases in the previous year.
Datwyler's share price rose 6%. In late September, the company shared new financial targets for the next three years. These targets confirm our enthusiasm about Datwyler's future prospects. The medical applications division expects to grow by more than 10% per year for several years.
The share price of Just Eat Takeaway.com (JET) fell 19% in the third quarter. The days after the release of its half-year results in August, the share price initially rose more than 10%. The company expressed the expectation that group-level losses would decrease from now on. Since then, some local governments in the United States have decided to put an upper limit on the commissions JET is allowed to charge restaurants. Earlier this year, JET completed its acquisition of U.S.-based Grubhub. The limit on commissions currently applies in New York, which is the main region for Grubhub, among others. On Oct. 21, JET is hosting an investor day, where it will discuss its strategy in the United States, among other things.
Investment Case: KPN
KPN is the market leader in telecommunications in the Netherlands. Over the past decade the number of players in the telecommunications market has been consolidated. As a result, there is an oligopoly in the Dutch telecommunications market. The market is now largely in the hands of three telecom companies. KPN and Vodafone Ziggo are the only ones with nationwide fixed and mobile networks. T-Mobile has a mobile telecommunications network and uses KPN's fixed network to offer its Internet services. The chances of a new telecom player entering the market with a nationwide fixed and mobile network are very slim. A new entrant would have to invest many billions of euros in licenses and networks. Moreover, it will take many years to build a network and to win enough customers. We expect competition to become less because of the oligopoly in the telecommunications market.
We expect revenue and profit growth to return at KPN in the coming years. Rates for Internet subscriptions are rising due to rate increases and because more and more people are switching to fiber. Mobile subscription rates are stabilizing. Due to cost savings, profits are rising faster than revenue. KPN has an ambitious plan to accelerate the rollout of the fiber optic network. This will increase the number of households connected to fiber from KPN from 30% at present to 80% in 2026. Investments will remain high until 2025. But after 2025, investments will fall substantially. This will further increase the already very strong cash flow.
KPN uses its solid, predictable cash flow to pay an attractive dividend, which at its current share price is 5.0%. KPN has indicated that the dividend payment will continue to increase in the coming years. If space remains on the balance sheet, KPN will use it to repurchase shares. This year, through a share repurchase program, KPN is returning another 200 million euros to shareholders. Together with the dividend, this means that KPN will pay out almost 7% to its shareholders this year.
We find it interesting that the telecom sector has been out of favor in the stock market for more than 10 years. Investors in the stock market seem to ignore the underlying improvements in market conditions and declining competition. At the same time, we notice that insiders have been actively on the acquisition trail in recent years. Telecom companies, major shareholders and private equity investors are willing to pay much higher valuations for telecom companies than on the stock market. In the Netherlands, T-Mobile was recently acquired by two reputable investment funds. Based on the valuation the investment funds paid for T-Mobile, a KPN share would be worth 3.20 euros. This is almost 20% higher than KPN's current share price. We think KPN deserves a much higher valuation than T-Mobile Netherlands. KPN is the market leader and has a nationwide fixed network. T-Mobile is the number three player and uses KPN's network for its Internet services.
The AEF added shares of KPN to its portfolio at the end of 2020. Since the initial purchase, a return of over 15% including dividends has been achieved. This leaves KPN's share return slightly behind that of European stock markets. Due to the defensive nature of KPN's activities, we believe the share's risk is limited. We believe that KPN shares have an attractive risk-return profile. As such, it fits well with the investment profile of the Antaurus Europe Fund. For the next few years, we expect KPN's share to average a higher return than the European stock market, while the risk is much lower.
Strategy and outlook
European stock markets rose slightly in the third quarter. From its annual peak in August, the European stock market fell about 5% at the end of the third quarter. Negative news about the Chinese real estate market, weakening economic growth and rising inflation seem to make investors more cautious.
Following in the footsteps of Asian countries, we are also seeing a decline in economic growth expectations in the United States, for example. Costs for raw materials, personnel and logistics continue to rise. This puts pressure on profit margins for many companies. Therefore, for a lot of companies, profit margins appear to have peaked in the first half of 2021. We expect the potential for earnings growth to be limited for many companies in 2022.
Central bankers have long maintained that some of the effects driving inflation are temporary. In recent weeks, however, doubts seem to have increased among them as to whether this is actually the case. Among investors, that doubt also seems to have increased. Financial products that track inflation have been pricing in higher inflation in recent weeks.
Inflation rates in the Western world are currently quoted at over 3% to 4%. The inflation target of U.S. and European central banks is 2%. Consequently, in the past, central banks have raised interest rates at current inflation rates to curb inflation. In addition to the inflation target, central banks aim to promote economic growth and reduce unemployment. To achieve this, interest rates are actually kept low and a lot of money is pumped into the economy through monetary easing. It seems that the tools, available to central banks, are insufficient to pursue both objectives at the same time. If inflation remains high, central banks will have to make a choice. If they choose to raise interest rates, this is likely to have a negative impact on financial markets.
In line with recent quarters, the AEF remains cautiously positively positioned with a net long weighting between 25-50%. Although growth is slowing, the global economic recovery is continuing. Monetary policy remains very generous. We think current equity valuations are on the high side. 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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