Just days after Russia’s invasion of Ukraine in 2022, Robur’s Small Cap Fund Sweden made a significant investment in Saab, a defense company. The fund’s manager, Henrietta Theorell, acquired nearly 2.5 million shares, which has proven to be a lucrative decision. The stock price has surged, and the company’s value has tripled. However, the small cap fund has gradually sold off some of its holdings, leaving only 414,080 shares, representing a minimal percentage of the company’s capital and voting rights, according to Holdings.
The reduction in Saab’s position by the Small Cap Fund Sweden was initially due to portfolio maintenance, as the position had become disproportionately large. “We took some profits in the stock,” explained Henrietta Theorell. With Saab’s market value now at 127 billion SEK, it no longer falls into the small cap category. “We further reduced the position to align with the fund’s communicated investment strategy, which focuses on small-cap companies,” Theorell added.
Despite the divestment, Henrietta Theorell remains optimistic about Saab’s future prospects. She believes that with the expected increase in military spending by Sweden and other countries, Saab is poised for continued revenue and profit growth. Another small cap fund manager, who chose to remain anonymous, also had to sell some Saab shares due to the company’s soaring valuation. However, he retained a significant position, deviating from his fund’s benchmark, Carnegie’s small cap index.
The manager’s confidence in Saab’s performance stems from the belief that the company will benefit from the current geopolitical climate, with potential growth opportunities as Sweden strengthens its defense capabilities. The ongoing conflict in Ukraine and the evolving global dynamics could lead to a significant uptick in defense spending across Europe, a sentiment shared by veteran fund manager Ingemar Syréhn, who oversees Robur’s Export Fund.
Syréhn’s fund also invested in Saab following the events in Ukraine, making it the tenth largest holding in the portfolio. Despite acknowledging the short-term risks, Syréhn remains bullish on Saab’s long-term prospects, especially as Sweden’s NATO membership and non-American status could play in the company’s favor. However, he cautions that a peace agreement in Ukraine could temporarily impact Saab’s stock performance.
While some analysts warn of a potential downside in the short term, citing Saab’s current valuation as expensive, others view any pullback as a buying opportunity. The market sentiment suggests that Saab’s stock may face pressures in the near future but could bounce back swiftly. As investors navigate the uncertainties, the consensus remains that Saab’s strategic position in the defense industry and its growth potential make it a compelling long-term investment opportunity.