Så gick det under fondens första år

That's how it went during the fund's first year

GLOBAL SECURITY FUND IS A SHARE FUND THAT INVESTS IN SECURITY COMPANIES GLOBALLY. SECURITY MEANS IN ADDITION TO TRADITIONAL SECURITY ALSO CYBER SECURITY.

You can download the report here.

Please note: this annual report was prepared at the end of February and before the coronavirus outbreak. Although the outlook for the stock market has changed dramatically in a short period of time, we believe it is still relevant to publish this report because it highlights the value of the security sector – a sector that largely has companies that fit under a “business-to-government” model . Under current circumstances, we believe that these companies have good prospects and less uncertainty as we do not believe the investment trend in security is changing. Rather, we believe there may be an increased focus on security.

Historical analysis of the security sector - that's why we started the fund

What led us to start the Global Security Fund was to a large extent the good qualities that the sector has shown historically. And which we had reason to believe would be valid in the future as well. An analysis of the historical returns for shares in the security sector over the past 30 years (1988–2018) showed that the sector has returned better than Swedish, American and global shares as well as shares in the technology sector during the period. In addition, at a risk that was three percentage points lower than that for Swedish shares.

What also emerged in the analysis was that the security sector, compared to Swedish shares, showed the same frequency of losing months but that these losing months were not as large. In addition, the security sector performed better during periods of geopolitical uncertainty, which can be assumed to be related to the fact that investors' focus on perceived safe security companies tends to increase during these times.

Swedish shares and the technology sector, on the other hand, tended to do better late in the business cycle when risk appetite is normally higher. The conclusion we could draw from the analysis was that the security sector offers an attractive historical return profile, but that at the same time it can reduce the risk in a portfolio of Swedish and global shares. The strongest portfolio combination in the historical analysis, i.e. the combination that gave the most return per unit of risk, turned out to be Swedish stocks and a portfolio of security companies.

Actual development during the fund's first year

In the fund's first year of management (February 21, 2019 – February 21, 2020), a return of 19.97 percent was achieved after fees, which is significantly higher than the historical return for the sector of 15.8 percent.

During the same period, Swedish shares returned 24.2 percent, which is higher than the historical average, while the technology sector returned a full 34.8 percent - also significantly higher than the historical average. It has been a period of high risk appetite, which indicates that we are either late in the business cycle or that the market's behavior has changed and to a greater extent prefers growth over value companies. History speaks for it earlier.

Looking back, the technology sector has outperformed the security sector (valued companies) by ten percent or more over a twelve-month period on several occasions. But in all cases, it has resulted in this return difference returning - ie the best time to reweight to value companies has historically been periods when the technology sector has developed relatively strongly. The most extreme example is the technology bubble which led to a crash for growth companies and a revaluation of value companies, the security sector in particular.

With regard to the fund's ability to reduce risk in periods of negative returns for Swedish shares, this relationship has also been valid during the fund's first management year. The four months of losses recorded for OMX total return during the period added up to -19.2 percent. The corresponding figure for the Global Security Fund was -5.1 percent.

The fund's holdings have noted a wide spread in returns. Among the winners are the cyber security company Carbon Black, which was bought up during the period by VMware and the IT supplier Leidos, but also more traditional security companies such as Booz Allen Hamilton and Lockheed Martin. In the negative balance were the system suppliers Dassault and Palo Alto Networks as well as Saab.

The security sector – an investment in the future

In 2015, the UN defined 17 global goals for sustainable development until 2030. Sustainable development is an important goal and there are many who are unaware that it is precisely security that is defined as goal 16 – peaceful and inclusive societies. If we lack a well-functioning society, we cannot achieve any of the other goals - that is a basic prerequisite

In our opinion, there are four main arguments that suggest that the security sector will be a good investment in the long term.

1. Megatrends

There are five megatrends that indicate where we will be in 30 years; economic power shifts, climate change, demography, urbanization and technology. Although there are many funds that focus on these trends in the form of pharmaceutical funds, technology funds, etc., there is no one who talks about the geopolitical risks these trends entail. We believe that these risks will lead to an increasing demand for security.

2. High growth

Most of the companies in which we invest are classified as value companies. These are companies that are characterized by low p/e ratios, high dividend yields and strong balance sheets. They give the portfolio a stable base. But within the security sector there are also companies that can be classified as pure growth companies, especially in cyber security. For example, in the first year it was cyber security company Carbon Black that performed best with a return of just under one hundred percent.

The investment bank Morgan Stanley forecasts an annual growth for cyber security of over 12 percent until 2022. We believe in double-digit growth until 2025. In cyber, there are also areas that have significantly higher growth.

The space industry is also an area of high growth. Both Goldman Sachs and Morgan Stanley believe that the space industry will become a trillion dollar industry, measured in dollars, before 2040. That would correspond to an annual growth of 6 percent.

3. Increased investments by NATO and the Swedish state

Both NATO and the OECD countries allocate increasingly higher budgets to security. This means that the industry receives an increased demand from government customers - a trend that we believe is sustainable in the long term and that benefits the companies in the sector. Having government customers is significantly safer than so-called 'business-to-consumer' models.

4: Price development under geopolitical risk

Our historical analysis indicates that the security sector performs significantly better than other sectors during geopolitical unrest. According to award-winning financial research, spreading risk helps investors build a more resilient portfolio. Including safety shares in a portfolio of Swedish and global shares has proven to generate a better risk-adjusted return over time. We are convinced that this connection will also apply in the future.