Monthly newsletter July 2019

July was a very strong month for Global Security Fund with a return of 4.3 percent in line with the fund's benchmark index which returned 4.4 percent, but significantly stronger than OMX TR which was down 1.4 percent. Over 3 months, the fund has beaten both the benchmark and the defense sector by almost 3 percentage points and OMX by almost 10 percentage points. In comparison to other globally diversifying funds, the GDS fund is at the top, which confirms our argument that the defense and security industry in particular behaves differently to other sectors.

It was the security and IT sectors that performed best in July. Measured in Swedish kronor, Dell, Carbon Black and Palo Alto Networks were the best performing stocks in the portfolio up 17.81%, 15.45% and 15.33%, respectively. It was not entirely unexpected that Dell recovered after the month of June. Our opinion is that Dell is a well-run company, however, our assessment is that the company is greatly affected by the ongoing trade war between the US and China. Dell works actively to reduce that risk. Our assessment of Carbon Black has so far played out better than expected and the company is up over 40 percent since our investment in April. There is an extremely large upside to security companies that succeed, but we are aware of the higher risk in these individual, usually smaller companies, which also explains our current allocation to the company. Fireeye, another cyber security company owned by the fund, performed less well, rising 5.43 percent. The company has faced headwinds with higher-than-expected costs for cloud migration, which caused the company to fall over 6 percent in the last days of July.

The defense sector again performed very well with L3 Harris Technologies, Mantech, Northrop Grumman, CACI and Raytheon at the top of the defense companies. United Technologies also performed strongly, a trend that may continue given the impending merger with Raytheon. A number of good reports were also released during the month which included Raytheon, Northrop Grumman and Lockheed Martin. Northrop Grumman is usually conservative in its assessments, but we note that the company has beaten market expectations every quarter for the past year.

The five worst performing companies in July were Kongsberg Gruppen, Flir, Thales, Textron and Boeing. Boeing reported its biggest quarterly loss ever – a whopping $2.9 billion. Since the start, the fund has had a very small allocation to Boeing because we assess that there are still risks for the company. In the long term, however, we consider Boeing to be an interesting company, and we follow the development closely in order to possibly buy more shares if the price continues to fall.