Monthly Bulletin May 2020


Share prices were generally strong in May, with the tech sector once again at the forefront. The Global Security Fund's holdings also had a good development, but a weakening of the USD in relation to the Swedish krona led to the fund backing 1.4% during the month.

Central banks' ability to calm markets is impressive - the US tech sector's stock index Nasdaq Composite Index is up over 6% this year, while Swedish equities have only backed 7%. In the foreign exchange market, we see the same relative calm where the Swedish krona is largely unchanged against the dollar, but on the other hand has strengthened more than 10% against the dollar since March.

Crisis management and major investments by the US central bank have so far managed to dampen the dollar and raise share prices. Under the surface, however, it is anything but calm and the majority of the shares have underperformed. What drives up index returns is a small selection of large companies - the so-called FAAMG (Facebook, Amazon, Apple, Microsoft and Google), which now account for more than twenty percent of the US S&P 500 index. Thus, there is a great demand for well-managed technology companies with relatively low debts and a robust business model. The Global Security Fund's holdings of technology-driven security companies have increased significantly in price and thus had a positive impact on the Fund's total return. Cyber security specialist Crowdstrike is up over 76 percent this year and more than 180 percent from the level the fund acquired while Symantec is up 55 percent. Microsoft, Booz Allen Hamilton and Leidos have all had strong share price development.

In many respects, May was a repeat of the price trends we have seen so far since the turn of the year - Crowdstrike was up just under 30 percent and technology holders Booz Allen Hamilton, SAIC and Symantec were all up about 8 percent. Investors are willing to pay a premium for companies with robust and resilient business models with growth potential that should not be financed with an aggressive debt burden.

Geopolitical tensions are flashing orange but at the moment this has not adversely affected the market. China has paused imports of US agricultural products, which it undertook as part of last year's "phase one" of the trade agreement. Another notable decision is China's amendments to its national security law, which largely gives control of Hong Kong. At the same time, Chinese troops have forced themselves into the Galwan Valley in Ladakh, in the disputed Kashmir region, which could lead to concerns between China and India.

The trend towards rising tensions is clear and it will benefit cyber security companies but also more traditional defense companies with conservative debt burdens and robust business models. It should also be emphasized that these companies are less cyclically sensitive than other companies with exposure to consumption. This is because the companies have government contracts that guarantee their income on average two years ahead. The trends we see in the market right now, as well as the geopolitical tensions, mean that we look positively at the Global Security Fund's opportunity to generate good returns in the future.

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