Månadsbrev juni 2020

Monthly newsletter June 2020

It was again technology stocks that led the market in June with an increase of just under 5 percent for the Nasdaq index. Major technology companies such as Amazon (11.8%), Apple (13.6%), Microsoft (9.9%) and Netflix (7.2%) acted as locomotives. Crowdstrike (the fund's largest holding) increased over 13 percent during the month. However, the fund retreated 5.6 percent in June against the background of a weak dollar/strong Swedish krona combined with a large difference in returns between companies in the portfolio.

Many of the year's worst performing companies bounced back in June. Boeing was one of the companies with the best return during the month, with a rise of 24.8 percent. Our view is that Boeing's strong returns are a combination of the company being oversold and aggressive cost reductions. The crisis has been extremely difficult for companies with exposure to the aviation industry, which have lost the bulk of their earnings by over 50% in March and over 90% in April. More time is required before one can assess how the crisis has affected travel behaviour, but it is likely that sooner or later we will return to historical levels. Depending on how quickly travel recovers, it could be argued that airline stocks are now trading at a historically low valuation, which could form the basis for a longer-term recovery. The fund has a low allocation to the commercial aerospace industry, but the companies that the fund invests in that are categorized as the more traditional defense and space industry also have a part of their production directed towards the commercial industry and have therefore had a negative impact.

The fund took advantage of the month's strong price performance for Crowdstrike and reduced the allocation slightly. The stock is up over 101 percent on the year and is still the fund's largest holding. Microsoft was another tech company that performed exceptionally well in June and is up over 30 percent on the year. Textron, Saab and General Dynamics were other companies that had positive returns during the month of June (5.4%, 1.3% and 0.7%). These more traditional defense companies have had larger declines during the year and we see this month's positive price development as a sign that the shares were previously oversold and that the outlook is significantly better than what the price has indicated.

The majority of the portfolio's holdings retreated during the month of June. The worst performing companies were L3Harris Technologies (-15.5%), CACI (-14.4%), Huntington Ingalls Industries (-13.6%), Norton Life Lock (-13.4%) and Flir (-13.1%). There has been no material news to justify these share price falls and we see the movements as short corrections. There are still large price movements in the market and much depends on the high volatility we have seen so far, which is likely to persist for a period. The fund took the opportunity to increase its holding in Norton Life Lock from less than 1 percent to over 4 percent. A strong balance sheet in combination with strong market prospects for cyber security mean that the conditions for positive price development in the longer term look good.

From a share price perspective, geopolitical tension has so far largely flown under the radar. At the end of June, the new security law for China regarding Hong Kong came into force. We do not yet know how this will affect the region and the world, but the tactics that China is now using are against international law and will probably lead to geopolitical tensions. An increasing focus on security means that we look positively on Global Security Fund's opportunity to create good returns going forward.

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