February 2020 monthly letter


An escalation in the reported spread of coronavirus worldwide and its unknown impact resulted in a sharp revaluation of risk premiums and major declines in the world's stock markets. Even gold, traditionally seen as a safe investment, was weaker in February and the dollar was also slightly weaker against the Swedish krona. For the GDS Fund, this resulted in a negative return of 10.7 per cent in February, which was in line with other global funds. The market is worried that the impact of the corona virus will lead to a significant impact on global growth. However, we can note that almost all companies have failed in the past few weeks, even well-managed companies that are unlikely to be adversely affected by weaker growth in the world.

All holdings except NortonLifeLock, Kongsberg Gruppen and Leidos were down in February. It was an active month for the Norwegian Kongsberg Group, which increased by more than 8.7 per cent, measured in NOK, during February. On February 4, the company announced that they had sold the Hydroid Unit to US aircraft manufacturer Huntington Ingalls Industries for $ 350 million and that the two companies would establish a strategic alliance. On the 12th, the company released its quarterly report which showed record high revenues and order backlog. The company was also able to report that the integration of the Rolls Royce Commercial Marine acquisition is ahead of schedule and the target of NOK 500 million in realized cost synergies will be achieved already this year - 2 years before the schedule. Furthermore, the company is now entering into a cooperation agreement with Zero to increase its sustainability towards renewable and emission-free solutions.

Leidos reported strong sales growth of 11.6 percent, combined with stronger net margins. The company has 2.2x revenue for order backlogs and achieved significant contract profits in recent months. The company is well positioned as it has a strong cash flow that will help with future investments required to fulfill new contracts.

Cyber security companies performed poorly during the month and although Palo Alto Networks reported an annual growth of almost 15 per cent, the market was disappointed as it was less than expected and the rate dropped by 21 per cent during the month. Saab released a weak report that missed the market's expectations and the price dropped by just over 17 percent during the month. We are convinced that the weak report is temporary and that the company is well on its way to achieving its long-term goals.

The majority of the holdings in the GDS Fund are companies with secure, government revenues that benefit from the long-term investment trend in the security industry. That this drowns in news about coronavirus and that the rate reverses is not linked to the companies' future revenue generation and only means that companies such as Lockheed Martin are now traded at a PE number of around 14 - considerably cheaper than other so-called value companies, which should be considered extremely cheap.

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Monthly Commentary – January 2023

What a start we had to the stock market year 2023 and positive returns broadly across several asset classes. It has been risk on and risk taking