Monthly newsletter May 2020

Equity prices were generally strong in May with the technology sector once again leading the way. The Global Security Fund's holdings also had a good development, but a weakening of the USD in relation to the Swedish krona meant that the fund retreated 1.4% during the month.

The central banks' ability to calm the markets is impressive – the US tech sector's stock index Nasdaq Composite Index is up over 6% this year, while Swedish stocks have only retreated 7%. In the foreign exchange market, we see the same relative calm, where the Swedish krona is largely unchanged against the dollar, but has strengthened more than 10% against the dollar since March.

Crisis management and large investments by the US central bank have so far succeeded in dampening the dollar and raising stock prices. Under the surface, however, things are anything but calm and the majority of stocks have underperformed. What pulls up the index return is a small selection of large companies - the so-called FAAMG (Facebook, Amazon, Apple, Microsoft and Google), which now account for more than twenty percent of the American S&P 500 index. There is thus a great demand for well-managed technology companies with relatively low debts and a robust business model. The Global Security Fund's holdings of technology-driven security companies have increased sharply in price and thus had a positive impact on the fund's total return. Cyber security specialist Crowdstrike is up more than 76 percent this year and more than 180 percent from the level the fund bought in at, while Symantec is up 55 percent. Microsoft, Booz Allen Hamilton and Leidos have all had strong share price performance.

In many respects, May was a repeat of the price trends we've seen so far since the turn of the year — Crowdstrike was up just under 30 percent and technology holdings Booz Allen Hamilton, SAIC and Symantec were all up about 8 percent. Investors are willing to pay a premium for companies with robust and resilient business models with growth potential that should not be financed with an aggressive debt burden.

Geopolitical tensions are flashing orange but at the moment this has not affected the market negatively. China has paused imports of US agricultural goods, which it committed to as part of last year's "phase one" trade deal. Another notable decision is China's changes to its national security law, which largely gives control over Hong Kong. Meanwhile, Chinese troops have forced their way into the Galwan Valley in Ladakh, in the disputed Kashmir region, which could lead to tensions between China and India.

The trend towards increasing tensions is clear and this will benefit cyber security companies but also more traditional defense companies with conservative debt burdens and robust business models.. It should also be highlighted that these companies are less sensitive to the economic cycle than other companies with exposure to consumption. This is because the companies have government contracts that ensure their income for an average of two years to come. The trends we see in the market right now, as well as the geopolitical tensions, means that we look positively on the Global Security Fund's opportunity to create good returns going forward.

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