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The fund was up 2 % during the month, which is positive considering that the stock market in the USA Nasdaq was down 1 % and MSCI World TR was also down 1.5%. SAAB puts up with a slightly improbable 41 % return during February. It is positive to see that the fund's holdings in cyber security, including Palo Alto and Fortinet, have returned well. On the downside were Boeing and Honeywell, both of which were strongly negative during the month.
Despite a very strong start to the year with a rebound rally, we were reminded during February that the inflation problem remains and, as a result, hawkish central banks that want to act forcefully against inflation. It caused the American stock market to fall at the same time as the Swedish stock market held up better. The inflation data turned out, somewhat surprisingly, to be more persistent than expected and even if inflation is on the way down, it is a real challenge to bring down inflation in the US, Europe and Sweden. This led to the FED, the ECB and the Riksbank raising interest rates and also guided for new increases. Long-term interest rates rose as a result on an international basis, which caused concern in the market.
The interest rate increases also affect the conditions for companies at the same time that the effects of previous increases have probably not fully hit and been absorbed. It also raises questions about whether a soft landing in the US and Europe is still a likely scenario. Despite the fact that companies, both in Sweden and the USA, were predominantly guided down, the companies' share prices have held up well. Of course, this raises questions about the values.
Geopolitical risk stands out as what clearly marked the markets in February, which gives rise to concern going forward.
In February, Russia announced that it was suspending the nuclear agreement with the United States regarding access to controls. Even if it is rhetoric and politics in the action, it is a clear indicator of the deteriorating security policy situation.
The tensions between China and the United States have clearly changed after the conflict with the balloon craft and the tone has been raised among the countries' representatives. China wants to make it clear that the country has the same dignity and importance as the United States globally.
Despite continued and increased support from the West to Ukraine, we see no short-term peaceful solution within reach. Competent assessors do not see that there are prerequisites for peace negotiations right now and above all China's, and to some extent also India's, approach to the conflict is worrying and means that Russia is still functioning economically. It has become clear that all major powers are directly or indirectly now involved in the conflict in Ukraine.
How does this affect the fund?
China's rearmament will be met by a need for rearmament in the United States, but perhaps also by the other countries in the Quad.
We do not see a short-term solution to the conflict in Ukraine, but rather Russia as a completely separated pariah state from Europe, which means that the security policy situation will remain elevated for a long time. There will be demands for further investments in defence. In addition to areas of conflict discussed, there are tense situations between India and Pakistan as well as India and China. Diplomatic processes must of course continue and collaborations mainly around the climate issue are extremely important, but they will not affect the need for investments in defence.
It is clear that investment in defense is inevitable and the fund offers good protection for investors in a trend that is otherwise clearly negative for the stock market.
Which companies are next, we feel well positioned in American companies in both defense, space and cyber security but want to increase exposure to Europe and perhaps even more countries internationally. Active work with the fund's analysts, expert advice and the fund's broad network and access to security policy expertise works to find the right companies in Europe to give the fund's investors the right exposure to these trends.
Even if we are moving towards a darker time globally and in terms of security policy, it is clear that investments in defense are something responsible and proactive in order to prevent conflicts from materializing. Furthermore, it is important to protect Western democracies and their central position in world politics, not least in order to realistically manage and cope with the UN's global goals for sustainability.