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Jupiter US beats benchmark but discount widens

Lack of biotech hurts Jupiter US Smaller Companies

Jupiter US beats benchmark but discount widens – Jupiter US Smaller Companies has published results for the year ended 30 June 2020. The company reports a 3.2% fall in NAV compared to a fall of 3.8% in the benchmark (sterling-adjusted Russell 2000 Total Return Index). The discount widened from 9.3% to 15.6% and the share price fell by 9.9%. These numbers mask wild, COVID-related swings in share prices, as the chairman points out “Having reached a high in mid-January, the sector lost 42% to its low on 18 March 2020. At that point the Federal Reserve slashed interest rates to zero and a recovery began so that, by the year end, smaller companies had climbed back to within 8% of their level a year before.”

Given Robert Siddles’ decision to retire, the board is reviewing options for the future management of the company and will make a further announcement in due course. Stephen White joined the Board on 1 October as chairman designate and  he will take over from Gordon Grender at the 2021 Annual General Meeting.

Extract from the manager’s report

Nine stocks contributed 1% or more to performance and six of these were top ten holdings. The largest contributor was Palomar Holdings (earthquake insurance) which almost tripled. Its intensive use of data to improve underwriting and its customer friendly technology platform produced high margins and rapid growth. Old Dominion Freight Line (regional trucking) saw continued market share gains from its better service, despite a slowing economy. Recently acquired Chegg (online education) directly benefits from the need for social distancing. StoneX Group (formerly INTL FC Stone, a niche investment bank specialising in commodities) also benefited from the crisis as profits were boosted by market volatility. TechTarget (marketing services for technology companies) was not immune to the effects of the crisis, but investors liked the increased proportion of its business that is now under long term contract as well as its strong balance sheet. Addus HomeCare (social care for the elderly poor) saw surprisingly little impact from the virus, but achieved good growth in the year helped by an acquisition that allowed it to enter new adjacent states as well as solidify existing coverage.

As ever in small company investing, there were disappointments. Five stocks detracted from performance by more than one percent. The worst detractor was Hallmark Financial Services (insurance underwriter) which took a large charge in its standard commercial auto business where losses had been running ahead of claims reserves. The timing was unfortunate as this came just as the market took fright from COVID-19. The illiquid position was reduced on a rebound and we await further details of the run-off arrangements. Intrepid Potash (fertiliser and water services to the fracking industry) was hit by the collapse in oil prices and was sold. Virtusa (outsourcing of corporate apps) suffered as projects were delayed post crisis and was sold as a recovery in profits looks distant. Grid Dynamics (enterprise digital transformation) fell as this unseasoned stock – a private company recently acquired by a public special purpose acquisition company – faced a slow down among retail clients. Business is growing in other areas and the position was retained. Reading International (cinemas and real estate development) suffered firstly because of delays in developing its Union Square, NY property and then as a result of virus-fears. It was sold in view of the challenges facing cinemas. Finally, Alleghany (commercial insurance and reinsurance) fell due to anticipated losses from business continuation exposure in its international segment and it was reduced as a precaution.”

JUS : Jupiter US beats benchmark but discount widens

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