Report December 2019

During the month of December, Pareturn Columbus rose by 2.91% while the STOXX 600, MSCI Mid Cap and the IBEX 35 grew by 2.91%, 2.35% and 2.11% respectively. For the full year the absolute return was 27.61%. Five and seven years returns were 32.15% and 82.12% respectively and, since the genesis of Columbus in July 2008, the fund has returned 119.12%, exceeding that of European equity indices. The volatility of the portfolio remains at 11.7%, much lower than the average of recent years and similar to the volatility of the STOXX 600.

December was again a positive month for European stock markets which continue to benefit from stronger than expected corporate earnings. Stock prices were partly buoyed by the improving visibility surrounding Brexit, with the new British government effectively eliminating the possibility of leaving without a deal. The broader economic outlook remains mixed, however, with economic growth remaining close to zero across large parts of Europe, and the Chinese economy clearly slowing. This contrasts sharply with the US where the positive growth trend continues to be backed by strong consumption and employment figures. Although we remain somewhat cautious for the first half of the coming year in the European markets, our outlook for 2020 overall is positive with global central banks likely to remain supportive in response to any weakness.

Although the portfolio is constructed from the bottom up the structure has changed very little over the month with only a small continued reduction in our exposure to the more cyclical sectors such as banks, natural resources and energy. We continue to be positively positioned across the sectors where we see the most attractive mix of risk and reward, which are the consumer, business services and technology sectors. The average valuations of the fund remain attractive in our view, with the fund expected to see above average growth but without paying a valuation premium to the market overall. As always our focus remains on owning companies with high capital returns and free cash generation but trading at discounted valuations.

Within the portfolio the best performance in December came from Neoen, the French renewable energy company. The shares rose 20% in December taking the performance for the year up to 62%. The increase has been driven by the improving operating performance with quarterly revenues showing a 26% rise. The company reiterated its objectives for the current year, and out to 2021 by when it expects to almost double its operating profit to €400M. This will be driven by an increase in the installed capacity from 3 GW to 5 GW.

Akka Technologies was another strong performer, rising 16.3% during the month and 55.7% over the year. Akka is the leading engineering and research consulting firm in the mobility segment, and reported revenue growth of 26% during Q4. In the same period the company announced the acquisition of Data Respons, a Norwegian digital engineering consultancy, which will add scale to Akka’s own operations making it a leader in the European digital arena.

We have continued to increase our position in Software AG which in our view trades at an unwarranted discount to the sector and to its intrinsic value; as well as Talgo, the Spanish railway equipment group where we expect a significant improvement in growth in the coming years.

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