The revaluation of risk premiums we saw in February escalated in March, leading to further declines in the world’s stock markets and a sharp rise in the US dollar. Central bank efforts in combination with large rescue packages from all directions helped calm the markets, which has led to stock markets recovering significantly in recent weeks. Shares have largely been sold across the board, which also affected the Global Security Fund, which declined by 12.9 percent.

The fund has become more concentrated and we have reduced the number of holdings from 27 to 22 companies. Our exposure to the US dollar has risen to over 90 percent as we believe a significantly stronger dollar exchange rate this year. So far this year, we have seen that the risk premiums for growth companies have increased relative to the value of so-called value shares. This has benefited the more technology-oriented companies in the portfolio and also niche IT consulting companies such as Mantech and Booz Allen, who work closely with government customers with security solutions.

During market turmoil, sometimes good investment opportunities are found and we took the opportunity to buy ourselves into CrowdStrike for $ 32. CrowdStrike is a cyber security company that has been on the radar for a long period of time, but did not buy when we considered the price to be too high relative to other companies. The company was listed on the stock exchange last year for $ 34 and was traded at a price of $ 100 in a short time. With high double-digit sales growth driven by, among other things, world-leading products, we believe that the company will reach annual sales of $ 1bn before 2023. The company is now one of the five largest holdings in the fund and although we expect an increased level of volatility in the market, we believe that This is one of the companies that will benefit after the crisis. Five days after the purchase, the company was traded at over $ 57. We have also taken the opportunity to increase our holding in Microsoft.

Many of the traditional security companies were down sharply in March, in line with the other stock exchanges. We feel confident in owning these companies because they work directly with states as customers, which means they will not be affected in the short term by this crisis, unlike companies focused on individuals and companies. Most of the fund’s holdings have signed contracts that have secured more than twice the annual sales, which provides a fantastic short-term buffer. The world has been largely unprepared for this crisis and as a result we believe that security will be highlighted as one of the most important focus areas going forward. We believe the sharp investment trend that existed before the crisis will increase in pace. Being able to buy companies like Lockheed Martin now to a PE number of 13 will in retrospect be considered cheap. The fact that the fund has many such examples of companies makes us feel confident that we have good conditions to navigate through the storm.

Other posts

C8 Weekly Bulletin: Don’t Fight the Fed, Don’t Believe Them Either

BY JON WEBB
After last week's Bulletin, featuring an excerpt from Boutique CIO's strategy piece, we had a number of requests to see the whole document. So we are sending it out in this week's Bulletin.  It is a great overview of the current US investment environment.  Read more →

Thoughts From The Divide: Reversals of Fortune

BY JON WEBB
Last week’s TFTD (“Not Too Hot, Not Too Cold”) referenced Goldilocks to illustrate the tightrope US markets were walking: an economy slow enough to keep bond bulls happy, but not so slow as might spook equity bulls. This week, we continue the bear theme, courtesy of Ernie Tedeschi, and what might be taken as a public service announcement from the BLS, reminding both policymakers and the investing public of the dangers associated with “rear-view mirror driving”. The BLS benchmark revision is usually too wonky to attract press attention. But this is an election year, so naturally the BLS misplacing 818k jobs was an irresistible opportunity for conspiracy theorizing on the platform formerly called “Twitter”. Read more →

Thoughts From The Divide: Particularly Fluid

BY JON WEBB
Now a week out from the Fed making it clear that the squeeze of lower growth isn’t worth the juice of bringing inflation back to (not toward, Jerry!) 2%, Mohamed El-Erian summed up the state of play nicely in a recent article for the FT. The Queens’ College president noted that, “It is not often that you see a reputable central bank revise up its inflation and growth projections and yet strengthen a dovish tilt to its policy stance. Yet that is what happened in Washington last week when the Federal Reserve raised those projections up a notch and yet delivered two consequential signals – a willingness to tolerate higher inflation for longer and an openness to slow the ongoing reduction in its balance sheet.” Read more →
Back to all posts →