Global Security Fund månadsrapport – februari 2024

Global Security Fund Monthly Report – February 2024

8.20 % in monthly return, 13.04 % in return after just two months and now Europe's first defense fund - Finserve Global Security Fund - is categorized as Article 8. This makes the fund eligible on more platforms, meets wider sustainability preferences and can also offered via occupational pension.

The fund has had a flying start to the year and is meeting great interest both in the media and through the number of new shareholders. The fund has almost doubled AuM in a few months and now has approximately SEK 230m under management. We hope to add value to our investors through good returns, risk diversification and allocation to sectors that provide good conditions for good returns over the long term.

The return in February mainly comes from the fund increasing its exposure to defense companies. Among the fund's largest holdings are European Rheinmetall, Leonardo, Kongsberggruppen and SAAB. The companies benefit from the continued strong growth rate in the region.

Speaking of defense funds, the European Commission has now at the beginning of March come up with the EDIS European Defense Industrial Strategy, with a program called EDIP, European Defense Industry Programme. EDIS aims for the EU to achieve long-term full readiness over time in the defense industry. EDIS promotes increased European cooperation between member countries and with its slogan: "Invest more, better, together and European." The initiative with EDIP is about moving from emergency measures in defense production to support Ukraine, to long-term European readiness and competitiveness.

The ambition and effect of the initiative is that we see deepened European cooperation and by 2030, 35 % of the member states' defense budgets will go to intra-European defense. At the same time, the countries are expected to procure at least 40 % of the investments together.

This means deepened cooperation within the EU, but also within NATO. It also means that a selection of companies will be well positioned to benefit from the joint procurements and allocations. The initiative above is also in line with the theme worldwide, to invest in own production and build own technology in the defense industry.

The positioning of the fund takes this into account in order to provide the most effective allocation possible to its investors. The fund has continuously increased its share in European companies that we believe will have key positions going forward and benefit the most from continued strong growth in the region. Adapting the allocation to structural and long-term initiatives like this, provides predictability in growth.

European companies are also more at the forefront of their sustainability work and transformation. Large collaborations and demands increase the chances of succeeding in those goals. Sustainability risks for European companies are likely to decrease, increasing their relative competitiveness which in turn attracts additional capital.

Inflation and interest rate expectations still rule the global markets and there are signs that stocks are highly valued. Regardless of development, risk spreading will be important going forward.

The defense sector is less sensitive to business cycles and is less sensitive to inflation than the stock market as a whole and above all it provides risk diversification against geopolitical risk.

Despite diversification, the fund's sectors can be characterized by high volatility going forward, as we have also seen, especially the cyber security sector. Since market timing is admittedly difficult, the clear advantage of the sectors is that they undergo long-term structural growth and the fund is long-term in its exposure. The fact that growth is higher than the market as a whole provides good conditions for good returns and with a long-term investment horizon, volatility should be acceptable.

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