Monthly newsletter October 2020

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More than half of the fund's holdings reported in October, but despite the fact that the companies in most cases beat expectations, October was a weak month, both for the fund and for the world stock exchanges. Uncertainty over the US presidential election weighed heavily on the stock market and most stock exchanges in the world showed red numbers. The Global Security Fund also declined by 6.62 per cent and 6.85 per cent respectively (S-class and R-class, respectively).

Most companies, both in the fund and other listed companies, had a negative stock market development in October. One of the fund's holdings, the Norwegian Kongsberg Group, was the shining exception. The company reported on October 30 and shattered expectations regarding earnings per share by over 90 percent! SEK 2.46 compared with SEK 1.28 per share. Despite the fact that revenues were largely unchanged during the year, the EBITDA margin for the Group was 15.8 percent. The background to this has been good market adaptation, lower costs and efficient project implementation. In fact, the integration of Rolls-Royce Commercial Marine is far ahead of schedule, which also contributes positively to the good earnings trend. The company's board decided to distribute an additional NOK 10 per share, which corresponds to a total of NOK 1,800 million, and also to initiate a repurchase program of up to NOK 200 million. The company was up 7.4 percent for the month, which affected the fund's return by 0.5 percent.

Saab was the first of the fund's holdings to report during the month. The report was clearly below market expectations, both in terms of sales and earnings. The company fell 22.7 percent, which affected the fund's return negatively by 1.5 percent. Covid-19 has had a major impact on Saab as many of Saab's suppliers have had limited capacity and Saab has also had problems visiting these and getting products certified. Saab's target of an operating margin of 10 percent feels remote at present, but the sharp decline in October feels excessive. There is no doubt that Saab's share price has been volatile, but we expect the company to recover significantly after Covid-19.

One of the fund's largest holdings is Crowdstrike. It was also the company that had the largest negative impact on the fund in October. Crowdstrike fell 10.4 percent, affecting the fund by -1.8 percent. The company's development during the month was not the result of a weaker report, but the operation should rather be seen as a price correction, which feels perfectly reasonable given the company's very strong stock market development in 2020. The fund has reduced its allocation to Crowdstrike. with an allocation of 6.4 percent.

Lockheed Martin reported stronger sales and earnings than expected, but subdued growth expectations meant that the share price fell by 8.8 percent during the month, which had a negative effect on the fund of 1.1 percent. With a solid order backlog, we believe the company's growth expectations for 2021 are conservative and that the company will exceed these. Northrop Grumman is a company that usually gives conservative expectations and usually beats these - which was again the case in October. The company reported stronger-than-expected sales and increased 6 percent compared with the previous year, as well as a stronger-than-expected result. Despite this, the company fell 8.7 percent in October, which affected the fund by -0.85 percent. We believe that a strong order backlog will benefit the company and after a three-year price consolidation, there is a lot of upside for the share price.

Boeing reported in October and although expectations were negative, the outcome was not as negative as expected. It is clear that there is enormous uncertainty in connection with Covid-19 for the company, but with a relatively growing share from space and the defense group, which now accounts for 50 percent of revenues, it feels like the company has received a lot of beatings given potential future prospects.
Huntington Ingalls Industries does not report until next month but was up over 4 percent for the month - which had a positive effect on the fund with 10 basis points.

The fund has sold its holdings in Viasat and Textron. At the same time as the fund has reduced its holding in Crowdstrike, the fund has taken up positions in the cyber security companies FireEye, PaloAlto Networks and Fortinet. All three companies are considered to be large cybersecurity companies measured in sales and have good prospects. The fund has previously owned FireEye, but the company's relative valuation made the company less attractive compared to other cyber security investments. FireEye, which reported in October, and which beat expectations, we consider to be cheap given future expected earnings development. Palo Alto Networks and Fortinet are equal companies that both manufacture network solutions, but the companies have developed in different directions. Fortinet has focused on organic growth while Palo Alto Networks has been active in acquiring cybersecurity players. Both companies offer attractive growth that we believe has good opportunities in the coming years.

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