The Global Security Fund increased by 4.72 percent (S share class) and 4.52 percent (R share class) during December, which was significantly better than the comparison index MSCI World TR, which rose by 0.05 percent.
News of a cyber attack on the network monitoring program “Orion” from Solarwinds Corp affected the market during the month. Share prices for companies in cyber security raced away. The incident will likely have consequences for an industry that has been a clear winner during the COVID19 pandemic. This in the wake of increased budgets for security solutions. With over 320,000 customers in over 190 countries, the incident affected both the private and public sectors, however there is no official statement on the cost of the incident.
FireEye, a cyber security company that the fund re-established a position in during October, was the month's best performing stock. The company increased by over 53.4 percent during December when it became known that the company was the first to report on the Orion breach. FireEye is one of the few cybersecurity solutions companies with sales approaching $1 billion. However, sluggish sales growth in recent years has meant that the company's share price has stagnated. However, new acquisitions could help FireEye return to more attractive sales growth and profitability. For example, in November it acquired Respond Software, which increases the company's ability to deliver eXtended Detection and Response (XDR) capabilities. FireEye's phenomenal share price rise in December contributed 1.7 percentage points to the fund.
Crowdstrike was once again one of the fund's best performing stocks and the stock that contributed the most to the fund, this after the company delivered a quarterly report that beat expectations. Free cash flow was much better than expected and demonstrated the long-term potential of the business model to deliver profitable growth. Crowdstrike continues to have tailwinds from an increased need for security changes. Notably, about 20 percent of all servers they protect are in the public cloud with significant room for expansion. The stock gained over 38 percent during the month and helped contribute 2.4 percent to the fund.
Fortinet, a cyber security company with a focus on network solutions, benefited from interest in the security industry during the month of December and its share price surged over 20.5 percent, benefiting the fund by 0.55 percentage points. The company announced during the month that it has acquired SaaS company Panopta, which will enable Fortinet to offer customers more visibility into an increasingly complex tech stack. Palo Alto Networks, another cyber company focused on network solutions, was up over 20.9 percent on the month, benefiting the fund by over 0.46 percentage points.
Mantech International is one of the US Department of Defense's largest IT suppliers and reported several lucrative contracts during the month that included the US Homeland Security and Defense Agency. The company will likely benefit from the likely increasing rate of investment in security solutions within the US military. The company announced during the month that it had completed the acquisition of Tapestry Technologies, which will enhance capabilities in cyber architecture, policy development, software engineering and cyber education. The company was up roughly 16 percent for the month, which benefited the fund by 0.5 percentage points.
The more traditional security companies had a weak development during December. These companies also work with cyber security solutions, but investor focus has ended up on the companies' subdued expectations in the coming years. Lockheed Martin was the month's worst performing company and was down 2.75 percent. This, together with a weak dollar / strong krona, negatively affected the fund by 0.5 percentage points. L3 Harris Technologies retreated by 1.55 percent, which negatively affected the fund by 0.4 percentage points. Raytheon Technologies' share price was down just under 0.3 percent, which negatively affected the fund by just over 0.3 percentage points. Booz Allen Hamilton was up 0.45 percent while Northrop Grumman was up 0.8 percent.
The Swedish krona was roughly 4 percent stronger against the dollar during the month, and roughly 12 percent stronger for the whole of 2020. This, of course, has meant headwinds for the fund's return, but with broad negative sentiment for the dollar right now, there are good prospects for the dollar's development in 2021 .