Månadskommentar – oktober 2022

Monthly Commentary – October 2022

Finserve Global Security Fund had its best month since inception with 12.22 % in returns for the month.

The fund is now up close to 20 % for the year as of October 31, with 19.81 % in annual returns. This while the MSCI World Total Return is down approx. 16 % for the same period of the year and the NASDAQ a full 30 %. OMXS30 has done well compared to global exchanges but is down just under 20 %. The fund is positioned correctly against the right megatrends and we believe the fund and its shareholders will continue to benefit from it.

Almost all holdings in the fund were up during the month, with the exception of a couple of cyber companies and Microsoft. The holdings that stood out on the upside are Lockheed Martin, Science Applications and Honeywell which were all up above 20 % for the month.

Honeywell is a well-managed company with good management, good strategy with good profitability and when the company raised its guidance (forecast) and financial targets for 2022 and beyond, it was well received by the market. Lockheed Martin, as one of the world's largest defense companies, clearly benefits from the fact that large defense investments are needed and will be implemented in the coming years. Guidance and expected order book together with the fact that the company continuously wins tenders puts the company in a favorable position. Then we Science Applications as the fund continuously increased the allocation to and which looks attractive compared to the competitors in terms of IT solutions for defense often with the US government as a customer. The valuation of the company compared to its competitors has also been favorable and hopefully something the fund can continue to benefit from.

The end of September ended in a minor but October has really been a positive month for the stock market. It was probably related to the fact that the market interpreted the FED as more dovish and there was an expectation of a peak in interest rate hikes. In retrospect, we know that the FED was likely trying to clarify their position and their determination to fight and bring down inflation. The consensus was that the communication and the position was rather hawkish which caused the markets to go down. The American job market and the economy as a whole are strong, but then the effects of interest rate increases have a delayed effect on the economy and the full effects of the FED's policy will not be seen until a bit into 2023 at the earliest. The American economy is considered more resilient than the European one and it is possible that the actions of the central banks will soon diverge as the interest rate sensitivity of the economies differs somewhat.

The FED's actions must take into account inflation but also the labor market, and lately it has what is called the "FED's trilemma" where financial stability is also added to the variables of inflation and the labor market. According to many, the FED's powerful and rapid action has affected liquidity and stability in the markets and may risk breaking these with too powerful measures.

The fund is and should be exposed to a couple of megatrends in the economy and mainly has American companies in the portfolio, and the sensitivity to the FED's policy is slightly different for different holdings in the portfolio. The fund's cyber security companies have been largely affected by the policy because they are technology-oriented companies where the interest rate has a large impact on valuations. We still assess that the need is so contained within cyber security that the quality companies will succeed there. As for the defense companies, they have reasonable indebtedness and we also believe that if the stock markets continue to be under pressure in general, defense companies are a defensive and qualitative positioning. The companies are expected to receive large orders, good margins and stable cash flows.

The fund continues to believe in selective exposure in the stock market going forward.

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