Början av rotationen mot värdeaktier? Finns anledning att tro på en stigande inflationstrend

The beginning of the rotation towards value stocks? There is reason to believe in a rising inflationary trend

Central banks have been confident that signs of rising inflation will be transitory, but inflation figures from the past week cast doubt on that claim. On Wednesday, the consumer price index in the US came with an increase of 0.8 percent in the monthly inflation figure. Expectations were for an increase of 0.2 percent per month. In the last twelve months, inflation has increased by 4.2 percent. On Friday, the central statistics agency released the Producer Price Index, which was twice as high as expected, up 0.6 percent for the month and up 6.2 percent from a year earlier.

Although it is possible that the increase in inflation is temporary, the latest statistics indicate that the numbers are likely to continue to surprise on the upside and that this is the beginning of an upward inflation trend. For example, government support has, so far, dampened the cost side. It has fueled the other side of the argument; that we are now in a situation with rising inflation and rising long-term interest rates.

Growth stocks have been the main beneficiaries of quantitative easing and low interest rates, but concerns about higher inflation and higher long-term interest rates have seen a rotation out of growth and into value stocks in November 2020. For the Global Security Fund, which in many cases invests in value companies in the security sector, this the trend favored the price development of the fund.

“Over the past six months, the fund has risen by around 17 percent and many of the holdings have seen significant gains over the same period. However, from depressed levels. Examples include companies such as the aircraft manufacturer Lockheed Martin, the space and defense company Northrop Grumman and the aircraft carrier manufacturer Huntington Ingalls," says trustee Tor Sinclair and continues:

"Lockheed Martin is traded today around a PE number of 13, which is significantly lower than three years ago, the same pattern applies to many of the other traditional defense companies. We have many large companies that were sold down to inexplicably low valuations during the pandemic and I think that the upswing during the beginning of 2021 should be seen in the light of this.”

Tor points out that defense appropriations and investments in space and cyber security guarantee good growth going forward.

"Defense budgets for many countries that are part of NATO have still not come close to the set goals and there is no indication of reduced defense funding going forward. Add to that the investments being made in the space and cyber industry. The order books look good for the big defense giants and I am optimistic that order intake will continue to develop well.”

He further emphasizes that the fund's holdings in cyber security managed the rotation towards value in a good way.

“Fortinet has risen sharply over the past six-month period with an increase of approximately 70 percent. It shows that the rotation is selective and that companies that deliver on growth estimates are rewarded."

Tor believes that the historical discount at which defense companies are traded can be explained by the market's strong focus on ESG companies. But at the same time he wants to emphasize that the defense industry is a very significant sector for the world to be able to achieve its set climate goals and to ensure a safe world in which to live.

The fund's development over the past six months.

"If we are to be able to develop the technology needed for self-driving electric cars, satellites will be of central importance, I think 3D printing will also be a central part in developing airplanes that can take us more energy-efficiently between destinations in the future, to which can be added recoverable spacecraft. When it comes to ensuring a safe world and eliminating cyber threats, defense companies will also be at the center. In other words, it is too easy to just point to the defense companies that are living in the transition to a more sustainable world. They will be an important part of the transition and benefit from it.”