Global Security Fund månadsrapport – juli 2023

Global Security Fund Monthly Report – July 2023

During the month of July, Finserve Global Security Fund recorded a negative return of -1.1%, which was slightly worse than MSCI World. Despite slightly lower returns during the month, it is important to emphasize that the fund has shown resilience and low correlation to the market as a whole. The fund has navigated well through the prevailing market conditions in recent years and is focused on the long-term strategy – to be a diversifying portfolio complement.

Factors that have contributed to the fund's development during the month are a broad decline in US defense, although with some exceptions, for example Boeing, Booz Allen and Science Application which had a strong month. Companies that stood out on the downside were Raytheon, Kongsberggruppen and SAAB.

The fund has made new and expanded investments in European defense during the spring and summer and these companies have returned well. We are confident that these investments will perform well in the coming months given the broad increase in defense budgets within NATO and the overall momentum that characterizes this sector. We have particularly chosen to invest in companies such as BAE Systems, Leonardo and Rheinmetall. We estimate that these companies will be among the leading defense companies in Europe. The companies have established themselves as leaders in their respective fields. In addition, their broad product range and international presence have positioned them well to take advantage of the growth opportunities brought about by the increasing defense budget.
We see further tensions between the US and China where China went out and limited the West's access to key metals such as germanium and gallium. China accounts for the majority of the production of these and the metals are important for the production of, among other things, fiber optic products and semiconductors. The West, in turn, restricts exports of advanced semiconductors to China in order to slow down China's technological development and development of new products. We are long overdue for a high-stakes trade war and technology race, especially when the economies are so closely linked. Although the conflict is not as clear as the one in Ukraine, it is also fully ongoing and can have great importance and impact if the situation escalates.

The global market has been marked by concerns about weaker economic data and increased risk of recession and its potential impact on the stock market. The fact that many companies guided negatively and that many companies are experiencing a slowdown adds to this concern.
The central banks' actions have also had an impact on market sentiment. The FED has continued to raise interest rates and similar measures have also been taken by the ECB and the Bank of England. A somewhat weaker employment figure from the US has emerged and even if wages remain at the same levels, this has been interpreted positively by the market. Namely, it may give the FED the opportunity to consider a pause in interest rate increases and give some breathing space to the stock markets and especially to growth companies. The fact that we have a broad credit crunch now means that the economy will likely continue to dampen as a result.

Many analysts and investors are speculating that we are nearing the end of interest rate hikes and that the economy may be slowing down, which could even lead to rate cuts. Right now, it is the ongoing reporting period that we are monitoring closely. Sweden is ahead of the USA, which is the reporting that has the greatest impact on the fund. The review and evaluation of the Q2 results, the companies' forward forecasts and our view of the companies' and sectors' development form the basis of how we make adjustments in the portfolio going forward.

An important aspect is that the defense and cyber security sectors are in robust growth phases and these areas are characterized by necessary investments that cannot be postponed to the future. We are positioning the portfolio for the long term and we believe that the fund with its focus and holdings can provide investors with a much-needed portfolio complement that is positioned to withstand a volatile equity market climate and continued geopolitical tensions.

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