2019 was a good year for the GDS Fund, which increased by 11.06 percent in the ten months since its inception at the end of February. Increased geopolitical tensions around the world, especially during the middle of the year, caused the GDS Fund, during these periods, to clearly outperform other sectors. The pattern we saw in 2019 and historically during periods of geopolitical tension strengthen the argument that a stock portfolio diversified into the defense and security sector contributes to a more resilient portfolio.
The optimism surrounding the US and China trade agreements led to strong stock market developments in December. Particularly positive was the trend in consumer cyclical companies that helped lift the S&P 500 by 0.75 percent (SEK) during December. By comparison, the Swedish stock market grew by 2.4 percent during the month. The tech sector also performed strongly and the GDS Fund benefited from the portfolio's allocation to the security sector, however, its defense holdings performed worse in December, which, combined with a stronger krona, made the GDS fund back 2.69 % during the month. The strengthening of the krona in recent months has had a negative impact on the fund's return, but our assessment is that it is a short-term correction. Our expectation in the future is that the USD will continue to be strong.
The companies in the fund that performed best during December were Leidos, CACI, Microsoft, Mantech International and NortonLifeLock (Symantec). Leidos had an annual return of more than 90 percent and was up 5.5 percent in December. The reason for Leido's strong development was that the company announced that it will acquire the US privately owned company Dynetics for USD 1.65bn. Dynetics is a hardware-focused company that has won a number of lucrative government contracts, including satellite development, and that will provide Leido's attractive opportunities to increase sales growth. CACI, another technical company in the portfolio, was up 2.23 percent (SEK) in December, after the company won a USD 6.5bn contract from the Pentagon that runs over ten years.
The month's worst performing company was Boeing, which was down almost 23 percent (SEK). The company's technical problems with 737 Max led to the company's CEO leaving his assignment. During the month, the GDS Fund has reduced its allocation to Boeing to close to 0. There is a lot of substance and quality in Boeing and we expect the company to reverse the situation, but we believe that there are currently other investments that offer better opportunities for less risk. Textron, General Dynamics, Flir and Booz Allen Hamilton all performed negatively during the month.
After a strong year, the world's stock markets are now trading again to high multiples. The stock exchanges can continue to trade at these high levels, or even higher, but it is clear that the values are based on a belief in continued strong growth. In our view, the market has not yet priced in the geopolitical risks that exist and that these risks may have a negative impact on growth. If the market's view of risk changes, this can play out for a short period. How resilient is your portfolio?
