Monthly letter June 2019


The fund returned 1.27% in June, which was weaker than its benchmark, which returned 4.63% over the month. The return for the sector index Dow Jones US Select Aerospace & Defense Total Return Index was 4.05%.

Uncertainty in the market continued in June. Positive days and periods were replaced by days of decline and concern. On June 7, President Trump announced a solution to the expected customs of goods from Mexico, but at the end of the month, the ongoing trade war between China and the United States continued. The market has appreciated that the Federal Reserve, the US Federal Reserve, will cut interest rates not only in July but also in September. It has provided support to the stock market but can cause concern and decline if this does not happen. The geopolitical turmoil we see today provides a stronger argument for exposure to the defense and security sector.

The defense sector generally performed well during the month of June, but a weaker dollar in relation to European currencies had a negative impact on the fund. Adjusted for exchange rates, Saab performed best during the month, with an increase of just over 10%. Saab has for some time underperformed other defense companies but got air under the wings in June. Our assessment is that Saab has potential and can offer a large upside with limited downside. Read more about Saab and our view of the company here. Other companies that performed well in June were Textron, Symantec, Mantech, SAIC and General Dynamics. The fund increased its allocation to General Dynamics in May, which has proved to be a good decision. The five largest holdings in the fund are Lockheed Martin, Northrop Grumman, Booz Allen Hamilton, General Dynamics and Raytheon.

Dell, which was down over 20%, was one of the few companies with negative returns over the month. This was due to poorer than expected sales in the field of servers, such as storage, and that VMWare, which Dell owns over 80% of, did not raise its forecast for the full year. It is clear that the ongoing trade war between the United States and China is costly for hardware companies and Dell is sensitive, especially in terms of profitability, and that the company needs growth to succeed in long-term goals. The fund has an allocation of 1.8% to the Dell share and will not increase or decrease the holding with the information we have today.

The security company Carbon Black performed well and was up almost 5% during the month.

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