Alexandre Mouthon, manager at Pictet AM, believes the theme of security will remain buoyant in 2021 and beyond. Pictet Group/Sabine Senn

Alexandre Mouthon, manager at Pictet AM, believes the theme of security will remain buoyant in 2021 and beyond. Pictet Group/Sabine Senn

The Pictet-Security fund, since its launch in 2006, has been investing in security services and solutions intended for individuals, businesses and states, claiming almost two times higher growth in these market action periods, according to its manager Alexandre Mouthon. The fund's performance since the beginning of the year is +9.74%, driven by industrial values ​​and physical security products. On 7 April, the fund posted a growth of 43.29% over one year, 17.43% in three years, 13.49% in five years--an annual average of 10.62% since its launch.

The fund is divided into three segments: security services, IT security products and physical security products. 

In the portfolio, these three segments are balanced: physical security (autonomous vehicles, life sciences, contactless access systems) represents 37% of the fund’s assets. IT security (cybersecurity, cloud, identification, etc.), "in full boom linked to the uptake of telework", accounts for 30% of assets. Security-related services (online and fintech payments, inspections and tests, sensitive waste management) represent 29%. The cash pocket has been increased to 4% to capture futures opportunities.

Positive impact of confinement, sanitary risk

"In 2020, since the onset of the crisis, we have been reaping the benefits of sanitation and sanitation risk," said Mouthon. Thus in the IT security segment, managers have increased the values ​​associated with the deployment of cloud solutions, remote work and growing cybersecurity needs. In the security services segment, the emphasis was placed on B2C fintechs "considering e-commerce augmentation". In addition to physical security products, the management team has privileged the life sciences (10% of the portfolio)--particularly the companies benefiting from covid test needs--and cleaning and disinfection.

In return, the exposure vis-à-vis sectors such as transport security, “impacted by production plant closures”, and access control (Assa Abloy, Allegion) “which is suffering from office closures, reduced travel” has been reduced.

At the end of 2020, the management team adapted the portfolio in the context of inflationary cracks, rate hikes and advances in covid vaccine research. They have lowered the weight of IT security by assigning certain values linked to telework, valuations which have been greatly appreciated, as well as data centres which suffered curtailment given their sensitivity to rate increases. The weight of physical security products has remained stable, but managers have reduced testing companies to the benefit of those linked to vaccine development. The share of cleaning and disinfection remained stable, accounting for around 6% of the portfolio.

For those who have the prospects, Mouthon anticipates an exit from the pandemic in 2021. “The portfolio is positioned to seize opportunities linked to the normalisation of the economy and to the rebounding of sectors with the most suffering, supported by North American and European relaunch plans."

Priority is given to values that benefit from the reopening of the economy, such as disinfection, purification and air quality control systems, which will be strengthened in offices and public places; covid testing products--"the tests will remain structurally elevated and will still be necessary after the pandemic for reminders every six months, for journeys or rapid tests";  secured B2B payment solutions that benefit from shops reopening; and cybersecurity and protection of cloud solutions "because remote work will continue".

Favourable 2021 outlook

"The outlook on the topic remains favourable," Mouthon added. “Stimulus measures, increased demand, stock recovery will lead to higher commodity prices and variable costs. Nonetheless, Pictet-Security securities have pricing power and have plans to increase their prices in order to maintain profitability. The support plan presented by Joe Biden, or $2.3 trillion, will focus on infrastructure spending and the renovation of non-residential buildings from which securities will benefit."

As of 9 April 2021, the fund's assets amount to €7,034m--the 10 main holdings of the fund being Johnson Controls, Zebra Technologies, PayPal, Thermo Fisher Scientific, Palo Alto, Aptiv, Fiserv Inc, KLA Corp, Generac Holdings, Fortinet.

In terms of geographic diversification, North American companies account for 53% of assets, Europe 23% and emerging markets 16%.

This article was originally published in French on Paperjam and has been translated and edited for Delano.