Monthly commentary June 2022

Jonathan Furelid

Jonathan Furelid

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The fund was up, 0.57% for the R-Class during the month, despite strong stock market crashes. The Stockholm OMSX30 index was down - 8.32 % and the global stock index MSCI World was down - 7.77 %.

High inflation data and the Fed's sharp rise in interest rates by 75 basis points affected the markets. The central banks around the values may be judged to be late in their actions and will therefore need to act vigorously to overcome inflation, so expectations of high interest rates affect the valuations of technology stocks. The Fed may try to orchestrate a mild recession to reduce demand and thus inflation.

The fund's technology holdings were characterized by large declines in Cloudflare, Intel, and Honeywell, while the Crowdstrike and Science App developed strongly. The fund's holdings in space and, above all, defense, developed stably and well for the month.

Boeing recovered during the period and had a strong return on the 4,17%. We note that Saab continues to contribute with a strong return on 80 % Ytd and is well placed to increase its revenues. Saab's development is remarkably strong in terms of market development in general, which is probably largely driven by Sweden's increased defense appropriations. In recent weeks, the news came that Sweden has ordered two GlobalEye reconnaissance aircraft from Saab, to a value of just over SEK 7 billion.

We believe that the reason why the portfolio shows such good resilience is that the fund is well diversified and exposed to three super trends that will provide the conditions for good growth and profitability for the companies in these industries. The portfolio is also clearly weighted against the US with around 95%. Although the risk of recession in the US is high, it is probably lower than in Europe and in that case should also be milder. Europe also faces greater challenges in terms of energy supply and structural problems to deal with.

There is a relatively high consensus that growth may be lower in the future and that globalization will slow down, which may even lead to deglobalization. This is closely linked to geopolitical tensions and the need for countries and regions to ensure more reliable supply chains. Many believe that it will be increasingly difficult to create returns for the next 10 years compared to the previous 10. For this reason, we believe that one should seek exposure to growth sectors that are likely to grow more than the market in general and companies with already strong cash flows as the less profitable companies run a greater risk of financial difficulties.

Exposure to the three super-trends defense, cyber security and space, we believe are sectors that, at least on a relative basis, can beat the market from a risk-adjusted perspective. Cyber threats are growing rapidly and investments are necessary and largely planned for companies and government institutions. This is a trend that is expected to increase more and more in the coming years as digital qualitative information becomes increasingly important. Defense growth is reflected in increased budget allocations that can also lead to a follow-on John effect. Space is already a central part of our infrastructure and in line with the continued digitalisation and strong demand for intelligence data for defense, we, and other research institutes, believe that the space market will see strong growth in the future.

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