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Strong rise in European defense companies created a 2.44% return on the fund for the month. The fund is now up 22.90% for the year. SAAB (15.37%) and Kongsberg Group (14.69%) performed particularly well. New holdings such as Babcock International (11.43%) and Rolls Royce (9.76%) also performed well.
The entire sector has been very strong in recent years, while the stock market has been characterized by high risk. When all of Europe so clearly stands behind Ukraine, it is surprising that we private individuals should not be able to invest in the sector in our occupational pensions.
European defense companies continue to be characterized by high volatility, but at the same time by good prospects through increased defense appropriations and expanded cooperation between European countries. In May, for example, a Nordic summit took place in Stockholm, led by Prime Minister Ulf Kristersson, where the heads of government from the Nordic countries and Germany's Chancellor Olaf Scholz discussed Nordic competitiveness and security. They signed a joint declaration to promote emerging technologies and green transitions, as well as to strengthen investments in the defense industry.
The Swedish Armed Forces has submitted its budget proposal for 2025, with a focus on strengthening brigades, air defense capabilities, and training for conscripts and officers. The plan also includes increased interoperability with NATO and improved ability to handle unmanned vehicles. Supreme Commander Micael Bydén emphasizes the need for high flexibility in planning to meet the development of the outside world and uncertainties around personnel recruitment and material procurement.
Support for Ukraine has been too slow and has had too low ambitions. Kaja Kallas, Estonia's Prime Minister, expressed it meritoriously in Aktuellt on June 6. Europe's strategy must be to win the war and show strength and deterrent ability, because that is the only language Russia understands. Just defending Ukraine so that they do not lose is not a successful strategy. The signal value is also extremely important not only against Russia but also against China, Iran, and North Korea. These are countries that want to establish spheres of interest where they can oppress surrounding smaller countries. The named countries support Russia economically and with material and the EU should be tougher against China in particular. The EU is an important trading partner for China, larger than the US, but Europe is steadily decreasing in importance and its ability to make demands.
The economies of the EU countries together are ten times larger than Russia's economy. Even the Nordic economies combined are larger than Russia. Support from Europe needs to come now and more comprehensively. The American aid package to Ukraine has also increased pressure on Europe even more, both formally and informally, that Europe needs to take a clearer responsibility for security and peace in Europe. There is speculation that a victory for Trump could be negative for the defense sector and for Europe. Trump has made a couple of populist and sensational statements about how he wants to reduce support for Europe and Ukraine and potentially withdraw the US somewhat on the world political scene.
Regardless of the outcome, there is a consensus in the US Congress that Europe must take greater responsibility for Europe, especially since the US needs to devote large resources to the relationship with China and now also the Middle East. This is positive for European defense companies over time and important for the fund, which continues to have more than 50% exposure to European defense companies.
Cybersecurity had a weak month and the fund now has a low weight against the sector and is at 15% as of May 31. The fund believes that the current weight is appropriate given the market situation, but sees good prospects for the sector with high growth rate and high demand based on the geopolitical world picture.