Market Commentary - July 2024

The summer started calmly but ended in great turbulence that continues into August and at the time of writing. We have long been waiting for weaker data for the Fed to start its rate cuts. However, it is a balancing act, as excessively weak figures increase fears of a recession or a so-called “hard landing”. The big headline grabber was the US jobs data for July that came in recently. The slowdown in job creation was much greater than expected, while unemployment rose. Such weak figures have not been reported since the pandemic. This was enough to suddenly set off recession fears in the market and suddenly the stock market's fear index -VIX, is now at its highest level since the pandemic, see the graph below. At the same time, the market has quickly gone from speculating about a first rate cut from the Fed in September to fully pricing in a double cut. Futures trading indicates more than four cuts this year.

A couple of events in the tech sector also led to increased fears. The reporting period has started with mixed results, but Intel's report, for example, which announced major job cuts, was interpreted as a worrying sign. We have also just received news that Warren Buffet's Berkshire Hathaway sold half of its position in its largest holding - Apple, which is also seen as negative by the market.

Wall Street's “Fear Index” VIX Has Skyrocketed

The stock market often tends to overreact in the short term, with doomsday predictions surfacing periodically. However, if we take a broader view, these developments are in line with what we’ve been anticipating, as they create a foundation for interest rate cuts, which would benefit many of our holdings. Additionally, several leading companies have reported strong resilience, suggesting that a “soft landing” remains a realistic possibility.

For investors, it’s essential not to overreact or make short-term decisions. Patience and a long-term perspective are key in navigating these fluctuations.

Augmented Reality Fund becomes MetaSpace Fund

As previously announced, the Augmented Reality Fund will be renamed MetaSpace Fund as of August 12. Alongside this change, the fund’s investment focus will expand to include gaming/eSports, space technology, and artificial intelligence (AI), while maintaining a strong foundation in augmented reality (AR). This broader focus enables the fund to incorporate promising companies across complementary sectors that align with our vision. Our investment approach remains grounded in a select group of megatrends we hold strong conviction in.

Most existing holdings will remain, with some adjustments to ensure each holding maintains a robust connection to the fund's themes. AR will continue as the dominant theme, representing approximately 40% of the fund, with each of the new areas comprising about 15-20% of the fund at present. We aim to maintain a concentrated portfolio of 25-30 companies, each with a clear and substantial link to the MetaSpace themes. Given the synergies among these technologies, many current holdings naturally connect to more than one theme. For example, AI is essential to delivering an ideal AR experience, and gaming/eSports is a key application area for AR.

In selecting holdings for these new areas, we consider how each company’s focus intersects with our core themes. For reporting purposes, each portfolio holding will be assigned to the theme we deem most central to its business and growth.

Below is a list of the new holdings in MetaSpaceFund along with a brief explanation of what they do:

Surgical Science (theme - Augmented Reality) - Swedish company working on surgeon training and medical simulation using AR/VR tools.

Take-Two Interactive (theme - gaming/eSports) - Major American game developer best known for titles such as GTA and NBA, actively promoting eSports through sponsorships, acquisitions, league creation, etc.

Remedy entertainment (theme - gaming/eSports) - Finnish game developer of the smaller kind, with a strong focus on 3D technology.

Rocket Lab (theme - space) - Only major company besides Elon Musk's SpaceX involved in rocket launching. Run by New Zealand's equivalent of Elon - Peter Beck, it has now achieved profitability in its launches, while a new larger rocket is close to launch. They are also big on different types of space components.

Planet Labs (theme - space) - The listed satellite company with the most satellites in space. The satellites work to take high-quality images of the Earth that can be used, for example, for important climate work and the planning and utilization of resources and infrastructure.

Redwire (theme - space) - A company specializing in space technology by providing space infrastructure products and services, systems and components produced through innovative means such as space robotics.

Ast Spacemobile (theme - space) - The company is often referred to as the potential Nvidia of the space sector. It is unique in seeking to create a seamless direct connection to the network between its satellites and mobile phones. Many of the major mobile operators have partnered with the company.

Procept Biorobotics (theme - Artificial Intelligence) - This US medical device company develops advanced robotic systems for the treatment of urological diseases. The company makes extensive use of AI to automate and increase the safety and precision of procedures. AR also has great potential to complement navigation and training of surgeons.

Smart Eye (theme - Artificial Intelligence) - Swedish company working with AI and Eye Tracking. AI models are central to the work and are used to analyze eye movements and behaviors. Eye Tracking is also closely linked to both AR and gaming.