Monthly Commentary – December 2022


Happy New Year!

Finserve Global Security Fund's return for 2022 was 10 % and thus achieved returns of double-digit positive returns. As a thematic equity fund with a focus on clear megatrends, the fund has offered good diversification for investors in 2022. The strongest trend for the year has been the defense trend as a result of a serious and deteriorating security policy situation globally. Space follows the defense trend and will only grow in importance as a result of the geopolitical situation, even if the subject does not receive as much media space. The trend for cyber security is also affected by the geopolitical situation and we see this clearly in the number of attacks on Swedish companies and institutions after the application to NATO.

However, the month of December was challenging for the fund which was down 5.34% for the month. The decline was a result of increased recession concerns and a broad decline in the American market, where the fund has the largest exposure.

Technology including cyber security led the decline. Nasdaq was down near 9 %, S&P500 -5.90 % and global MSCI World IT 10/40 was down 8.73 %. Furthermore, the semiconductor market remains under pressure and volatile even though demand is high and has become a strategically geopolitically important issue of securing access and reducing dependence. The biggest negative NAV contribution was also the cyber sector, and mainly Palo Alto, a cyber company that resisted the decline well until December. Other companies were Intel, Microsoft and Crowdstrike with a negative NAV contribution.

The defense sector held up better but the decline in the US market was broad in December. Boeing, Saab, and the Kongsberg Group returned strongly during the month, along with Lockheed Martin and Raytheon. Negative contributions were L3 Harris, Caci Int and Teledyne.

The return for the month has also been negatively affected by the currency effect and exposure to the dollar.
The FED maintains a continued hawkish stance, albeit communicative in conveying to the market that they will be long-term and work consistently to bring down inflation. The FED is still interpreted as open to the fact that if the data shows that a slowdown and deceleration is on the way, interest rate increases may slow down. The data the FED is looking at the most now is employment numbers, but the US labor market has proven very resilient, so that in itself has not opened the door to any rate hike tapering. The expectation is that European central banks will continue to follow the FED, but as the European economies are probably not as resilient, they will probably have to deviate and lower interest rates earlier. However, the fund mainly has exposure to the American stock market and the FED.

There is a high risk of recession which of course also reflects current values and the decline that has taken place but if the recession does not become deep the conditions are good for the stock market and perhaps especially technology and cyber security. If there is a continued lack of qualified labor in the US, it is positive for Tech as digitization and investments can take place as a result. A weaker (or less strong) dollar is also likely to be positive for Tech.

It will be interesting to follow developments in Ukraine and whether the conflict becomes even more global. NATO's clear and now stated strategic focus on China will also be interesting to follow. Increased security political risk is probably here to stay for a longer period of time and we will continue to invest heavily in defence. Another trend for next year is to ensure availability of energy, raw materials, technology and have as little external dependence as possible, even if major collaborations will take place in the West. This trend plays into the fund's main focus and we believe the fund's three megatrends, defense, cyber security and space, will continue to be very relevant in 2023.

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