Monthly comment Aug 2022

Jonathan Furelid

Jonathan Furelid

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Finserve Global Security is going strong in a volatile and uncertain climate and has a selective exposure that is judged to be able to withstand a downturn well on a relative basis. The fund was up 2.15 % for the month which was clearly better than MSCI World which was down -3.61 % and OMXS30 – 5.52% and Nasdaq -4.64 %.
The fund is up 11 % for the year as of August 31, while the OMXS30 is down -21 % and the MSCI World is down -15 %.

In addition to a favorable dollar trend, the fund has had some holdings that have really stood out.

Palo Alto delivered a strong report in late August. The company is an attractive combination of value and growth companies and is a leader in its offering in cyber security. The company was up 11.48 % for the month after pulling back slightly at the end of the month in conjunction with a broad market decline. Cloudflare was strongly up for the month 24.34 % but more marked by recovery in a decline. The cyber security sector, along with tech in general, has high volatility currently and is likely to remain so, but the fund's managers believe in selective exposure to the sector over time.

In the defense sector, Huntington Ingalls stood out with a strong positive return of 6.19 %, likely due to developments in Taiwan and China and tensions in the South China Sea. Huntington Ingalls is a key supplier to the US Navy and is an important holding for the fund going forward.

Infrastructure in space had a relatively neutral development for the month and no holdings stand out.

In general, the month of August was for a long time a very strong month for the stock market until the appearance of US Federal Reserve Chairman Jeremy Powell on August 26. Powell made clear a more hawkish stance and to clearly act forcefully to bring down inflation, not rely on inflation expectations and instead rely on data. What caused the stock markets to react negatively was probably mainly that the FED's actions would cause problems and "pain" for consumers and companies according to Powell, and it also meant that a somewhat priced-in soft landing was deemed more unlikely.

Since the American central bank is the leader, and so is the economy, in light of the above, we need to be prepared for a worse scenario than a soft landing. Many are now predicting inflation trends, possible recession and interest rates, but it is very uncertain and difficult to predict. We believe that the most important thing is to have a selective exposure to the stock market that works over a slightly longer period of time as all sectors will be affected by high volatility in the future as well. Investors should also diversify their stock market risk with, for example, alternative investments.

The fund has a selective focus on three megatrends and sectors with companies that will receive large investments and have higher turnover, improved results and positive cash flows.

Defense investments will be directed even more towards geopolitical development and perhaps primarily towards the development of the relationship between the US and China. We will invest even more selectively in cyber security and focus on B2B and the companies that have states, municipalities and companies as customers rather than private customers. When it comes to space, we are passively allocated over time to companies that make the biggest investments and also have the best conditions in our opinion.

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