Monthly newsletter August 2020


Since the stock market turning point in March, the pattern has been the same - technology companies act as locomotives and many companies are traded at a valuation that was not thought possible at the beginning of the year - and that before the Corona crisis. Putting Price Movement in Perspective - On August 31, Apple's market capitalization was about to surpass the full market capitalization of the Russell 2000 index, which includes 2,000 small capitalized stocks in the United States. 18 months earlier, Apple was just over 30 percent of this value.

August was a good month for the Global Security Fund, which returned 2.3 percent. The dollar weakened by 1.5 percent against the Swedish krona. This is the fifth month in a row that the dollar is trading down against the krona and it is now trading 17 percent lower than in March.

Currency changes have had a major impact on fund returns, but from a company perspective we are pleased to note that the majority of the fund's holdings in July and August have reported stronger than expected and, on the whole, future growth looks positive. An example is Textron. The company produces the commercial Cessna and Beechcraft aircraft, and also has a large operation in the defense area, which has contributed to mitigating the effects of the COVID crisis. In August, the share was up just under 13 percent after the market had to digest the July report, where the results were not as negative as the market expected. CACI, a cybersecurity player, was the second best-performing stock in August, up 12.7 percent after reporting a better-than-expected result in August. Honeywell, the more traditional defense and space company, increased by 11.5 percent in August. The company will be included in the Dow Jones index as of August 31.

Crowdstrike is still the fund's largest holding and increased by 11.1 percent in August and the increase year's increase to 152.1 percent. When the fund bought into the company in March, at $ 32.16, we could not imagine that the company's price five months later would be over 230 percent higher. The company has fantastic future prospects and interest in the share paves the way for further gains, however, we can state that the market volatility for many growth shares is extreme. Microsoft and NortonLifeLock both increased by 10.3 percent during the month.

There were not many losers in August, but Huntington Ingalls Industries was the worst performing stock, declining 12.2 percent after the company reported weaker than expected. The defense technology company Flir fell by 11 percent despite the company reporting significantly stronger results thanks to cost savings. Saab fell by 7.5 percent after the company increased by 20.9 percent in July. The Norwegian Kongsberg Group fell by 5.7 percent, but a stronger Norwegian krone helped reduce the loss. The cyber giant Leidos decreased by 4.9 percent.

The huge difference between so-called value and growth stocks is today at a level that we last saw during the tech bubble. The fact that growth shares are priced at ever higher levels without substance to the company's underlying value may indicate a bubble, which makes value companies with profitable business models attractive. Companies in the security industry in many cases fall under this value definition and the outlook for the industry looks very good. Most of the companies the fund has invested in have long government contracts, which creates secure and long-term income. In a worsening economy, where, among other things, consumption is declining, it is reassuring to know that future cash flow will not be affected. Our basic case is intact. Given the geopolitical situation in the world, investment in global security will continue. Our view is that global security offers a good opportunity for future returns and excellent diversification when the gap between value and growth is likely to converge in the future.

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