Welcome to the JUNO Market Update.
In this video, Gordon Gomes from the Client Services team speaks to CEO + Founder Mike Taylor and Guy Thornewill, Head of Global Research based in London.
• JUNO's funds have a couple of investments in the global health sector. How are these tracking?
• What is a bear market and what does it mean for investors?
• JUNO's fund performance
• What are some tips to help members navigate the current downturn?
We have also provided a transcript.
Thanks for watching.
JUNO Market Update June 2022 from JUNO Funds on Vimeo
Gordon Gomes: Hi everyone. Welcome to the JUNO monthly update. My name is Gordon Gomes and with me today is founder and CEO Mike Taylor. Also joining us from our London office is Guy Thornewill, who's our Head of Global Research. Thank you guys for joining us.
We'll start with you this time Guy to talk a bit about the JUNO funds. We have a couple of investments in the global health sector within our funds, namely UnitedHealth and Novo Nordisk. Are you able to explain a bit about these companies and how they're tracking?
Guy Thornewill: Sure Gordon. Starting with UnitedHealth, this is the largest health insurance company in the US. It also offers pharmacy services, healthcare information services, and it has its own network of doctors. So due to the ageing population, the number of enrolled patients in the UnitedHealth network is consistently growing. This provides the company with really good operating leverage and higher profits. The company also has good pricing power. That enables it to increase the premiums it charges as the cost of healthcare provision rises which is happening all over the world. So that means in the current inflationary environment, the company is still able to do really well. So the recent results have been good, and we think UnitedHealth will be one of the most recession-resistant companies in the portfolio actually. Therefore, we've recently increased the weighting.
Turning to Novo Nordisk, we think this is actually one of the highest quality and most exciting companies in the portfolio. So what do they do? Novo is a global leader in developing and manufacturing drugs to treat diabetes and obesity. It's a Danish company. It's been around a long time and it's got a really good track record. The disease areas it treats are unfortunately growing strongly each year. But Novo helps improve care and quality of life for millions of people.
Its Ozempic drug for diabetes has been rapidly gaining market share, especially in the US, and its new drug for obesity, called Wegovy, is even more exciting in our view. Obesity has actually been an undertreated problem for a very long time. In fact, only 3% of US patients with obesity are actually treated with drugs, and Wegovy helps patients lose weight fast. This has huge benefits for not only patient health, but it also means lower costs for the healthcare system down the road. It's estimated that obesity has an economic impact of over 1 trillion US dollars.
Novo actually recently upgraded its guidance for 2022, which is pretty rare in the current market environment. And the shares are doing well so far this year.
GG: Thanks Guy. Can you talk about how these two companies align with JUNO’s overall investment strategy?
GT: So both companies are global market leaders in their respective businesses. Both companies operate in markets with strong underlying tailwinds. So that's demographics for UnitedHealth as I explained, and also greater prevalence of diabetes and obesity for Novo Nordisk. Also, both companies are gaining market share. Both enjoy good levels of profitability, in fact, for Novo Nordisk in particular, it enjoys very high operating margins of over 40%.
So these elements are all perfectly aligned with JUNO’s strategy of picking long-term winners. In the short term, both companies should still perform relatively well, even if we do have a recession in the US or Europe, so they should help the portfolios even in the tough markets we’re experiencing today.
GG: Thanks Guy for that stock update. Over to you Mike. It looks like we are in a bear market now for the first time since March 2020. What is a bear market and what does it mean for our investors?
Mike Taylor: Well, a bear market is a difficult time. It’s a difficult time for investors and it sure as heck is a difficult time for fund managers. No one likes to experience a bear market. Even us. I can tell you that when you wake up in the morning and the screens are red, it's not much fun.
The technical term for a bear market is when an index, which is what tracks the market overall, has fallen over 20% from its recent peak. So most global markets around the world now are in bear markets. And so bear markets are kind of…they are captured by what we call sort of like a waterfall sell-off and then a quick snapback rally. And you get the waterfall sell-offs when you get more bad news into the marketplace. And then you sort of get a rally back when everyone feels things are a little bit oversold and perhaps the news might improve. That’s sort of the pattern. Nobody knows when a bear market is going to end because it's obviously based on events in the future, which unfortunately we can't predict. And so some of them, like the Covid one, was only six weeks. Some of them last for years. This one we are arguably about six months in but I think the average bear market lasts sometime between one and one and a half years. So if that's a bit of a guide as to how long it could last, there may be some time to go.
GG: Thanks for that Mike. Rob has emailed in and asked why are JUNO's funds still underperforming their market index, even after a year, and this is something to be worried about?
MT: So JUNO is a growth fund. So it really depends on what index you're tracking to compare us against. Because we focused on growth businesses, probably one of the more comparable indexes to look at is the NASDAQ. The NASDAQ is off over 30% from its all-time highs, which were at the end of last year. So that's possibly more comparable for JUNO.
But what we have done in recent times is you know, we recognise that at the end of last year, we did get caught out in some of those high-growth names. Most of those we have sort of exited from the portfolios. So we still have a fund that is focused on growth and there are a couple of health care names that Guy has talked about before. However we are carrying more cash in the portfolio, we have increased some exposure to bonds, and we also had some hedging in the last few months. So the performance of the last three months has actually improved relative to the benchmark so I don't have stats for today's (17 June) price given that the market has fallen again by the time we’ve recorded this, but as of yesterday, the fund was down sort of less than 5% over the last three months whereas comparing indices, the NASDAQ was off 15 and the NZX was off about 10 over the same time period. So yep, there was definitely some underperformance at the back end of last year and early this year. But we feel that, the last couple of months, we’ve rectified that.
GG: Thanks, Mike. You've been investing for a long time now through many bear markets. What are some tips you can give our investors to help navigate this current downturn?
MT: Sure. Yeah. I mean, I've been investing for 25 years, I’ve been through many bear markets. I don't like bear markets, they’re not very nice. But they do pass. So if you think about it, like a season, you know, a bear market is like a winter. It's winter at the moment. And, although it's summer for Guy on the other side of the world, but it is winter here, and what do we know about winter? It’s a season that passes. And a bear market will end. As we talked about before, we don't know when it is. Unfortunately, we can't pick the exact date but it will end and what it does do is it creates lots of opportunities. They say you know, you make the most money sort of coming out of a bear market. And in my experience, the best returns are able to be achieved in that sort of first year when a bear market ends.
The other thing is not to pay too much attention to your emotions and how you're feeling in this time. Unless this is your day job, you really shouldn't be checking markets every day. Focus on other things.
You know, Warren Buffett has a good saying, “To be fearful when others are greedy, but also to be greedy when they're fearful.” So what that means is that at the maximum point of pain in a bear market when everyone is really depressed and feeling down and thinks that things can’t end is usually the time when the stock market actually bottoms. And one thing to note as well is that a stock market often bottoms in the middle of a recession. So that tells you that actually the market forward looks and it will bottom actually when things are probably at their worst, so who knows when that will be but that's sort of my advice and my tips.
GG: Thanks, Mike. And thanks Guy for joining us as well. If you at home have any questions you'd like answered on future videos, please send them through to [email protected] Thank you everyone for watching, and we'll see you next time.
Information correct as at 17 June 2022. Pie Funds Management Limited is the issuer and manager of the JUNO KiwiSaver Scheme. Click here for our Product Disclosure Statement. Any advice is given by Pie Funds Management Limited, and is general only. It relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees if you act on any advice. As manager of the Scheme we receive monthly fees that are determined by your balance and whether you are 13 years or over. We will benefit financially if you invest in our products. We manage any conflicts of interest via an internal compliance framework designed to ensure we meet our duties to you. For information about the advice we can provide, our duties and complaint process and how disputes can be resolved, visit www.junofunds.co.nz. All content is correct at time of publication date, unless otherwise indicated. Past performance is not a reliable indicator of future returns. Returns can be negative as well as positive and returns over different periods may vary. Please let us know if you would like a hard copy of this disclosure information.