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Discounted defensives

Global equities had another good month, ending the first half of the year with an impressive slate.

Continued generous monetary policy and increased vaccination rates contributed to the optimism. However, the major driver of the stock market rise is not positive news but the fact that fixed-income investments continue to be traded at extremely expensive levels and so equities still look cheap in a relative perspective.

The best returning sectors in the portfolio were healthcare and technology. In healthcare, the results were driven by pharmaceutical companies whose products and services have been used less during the pandemic but are now expected to increase in connection with more and more people being vaccinated. In technology, we saw differences between software and hardware-driven companies, with former showing better performance. The best returners were Roche (+10.4%), Apple (+9.9%) and Novo Nordisk (+8.9%). It is difficult to identify any company-specific news that explains most of the performance. Roche and Novo Nordisk presented positive results from some early studies, and Apple is buying back shares in record amounts, but it was mainly increased expectations of strong earnings figures in the coming quarters that drove the shares.

The past 12 months have delivered extremely strong stock market growth, but it is important to note that the rise has been very different between sectors. Growth companies and cyclically sensitive companies with highly short-term profit growth have been winners. More defensive companies whose results were not affected by Covid-19 have seen much more modest development during the period.

Today, we see great opportunities among companies that investors have to some extent overlooked, perhaps because they are perceived as boring. In addition, many of these companies grow better structurally over a longer period of time than most of the more cyclical companies. We are currently looking at a number of cheap new companies and evaluating whether we should further increase our exposure to defensives in medicine, technology and consumer goods. We are convinced that these companies not only contribute with lower risk but also higher long-term returns, and that they form a perfect cornerstone in long-term portfolios.

 

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