June 2020 monthly letter


It was again technology shares that led the market in June with an increase of just under 5 percent for the Nasdaq index. Major technology companies such as Amazon (11.8%), Apple (13.6%), Microsoft (9.9%) and Netflix (7.2%) acted as drawers. Crowdstrike (the fund's largest holding) increased over 13 percent during the month. However, the fund backed 5.6 per cent in June in light of a weak dollar / strong Swedish krona combined with a large difference in return between companies in the portfolio.

Many of this year's worst performing companies bounced back in June. Boeing was one of the companies with the best return during the month, with an increase of 24.8 percent. We believe that Boeing's strong return is a combination of the company being oversold and aggressive cost reductions. The crisis has been extremely difficult for companies with exposure to the aerospace industry, which have lost most of their revenues by more than 50% in March and over 90% in April. More time is needed before you can assess how the crisis has affected travel behavior, but sooner or later we will probably return to historical levels. Depending on how fast travel is recovering, it can be argued that flight shares are now trading at a historically low valuation, which may form the basis for a longer-term recovery. The fund has a low allocation to the commercial aviation industry, but the companies in which the fund invests, which are categorized as the more traditional defense and space industry, also have a portion of production directed at the commercial industry and therefore have had a negative impact.

The fund utilized this month's strong price trend for Crowdstrike and reduced its allocation somewhat. The share is up over 101 percent a year and is still the fund's largest holding. Microsoft was another technology company that performed exceptionally well in June and is up over 30 percent a year. Textron, Saab and General Dynamics were other companies with a positive return during the month of June (5.4%, 1.3% and 0.7%). These more traditional defense companies experienced major declines during the year and we see the month's positive price performance as a sign that the shares have previously been oversold and that the outlook is significantly better than the price has indicated.

The majority of the portfolio holdings declined in June. The worst performing companies were L3Harris Technologies (-15.5%), CACI (-14.4%), Huntington Ingalls Industries (-13.6%), Norton Life Lock (-13.4%) and Flir (-13.1%). There has been no significant news that motivates these stock price falls and we see the movements as short corrections. There are still large price movements in the market and a great deal is due to the high volatility we have seen so far, which will probably continue for a period. The fund took the opportunity to increase its holding in Norton Life Lock from less than 1 percent to over 4 percent. A strong balance sheet combined with a strong market outlook for cyber security means that the conditions for positive price development in the longer term look good.

From a stock price perspective, geopolitical tensions have so far largely gone under the radar. At the end of June, the new Hong Kong Security Act for Hong Kong came into force. How this will affect the region and the world we do not yet know, but the tactics that China now uses are contrary to international law and will probably lead to geopolitical tensions. An increased focus on security means that we look positively at the Global Security Fund's ability to generate good returns in the future.

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