Bellevue Entrepreneur Swiss Small & Mid (Lux)

Swiss small and mid caps, as measured by the SPIEX, fell 3.9% in April. Geopolitical tensions, growth and inflation scare dominated, with China’s lock downs further weakening the top down picture. Inflation data reached new records in the US and Eurozone and government bond yields kept rising while central banks become more hawkish. In the Eurozone Q1 GDP increased 0.4% qoq in line with expectations but surprisingly declined 1.4% on an annualized pace in the US. Flash Eurozone PMI rose to a 7-month high of 55.8 in April from 54.9 in March, led by services (57.7 vs 55.6) which benefited from loosen COVID restrictions, and helped offset the waning manufacturing output (50.4 vs 53.1), impacted by production curbs and ongoing supply constraints. In Switzerland, real estate (+1.6%), utilities (+1.4%), and consumer staples (+1%) performed best, while healthcare (-12.1%), communication services (-5.5%) and materials (-3.9%) lagged the most.

Against this backdrop, the fund dropped 4.1% (CHF / B shares) in the month, under-performing its benchmark by 26 bps.

Main detractors were Straumann (-21.2%), Bachem (-15.4%) and VZ Holding (-15.3%). Straumann suffered from fears of demand slowdown, given that dental is the most consumer exposed segment in the medtech space. The group reported a strong Q1 organic growth of 27.2%, driven by healthy patient flow and market share gains. The unchanged guidance of organic growth in the low DD range nevertheless failed to impress. Bachem experienced profit taking. Mid term targets for 2022/26 point to an average 15% sales growth p.a. and an improvement in EBIT margins. In 2022 the company is allegedly facing some product portfolio fluctuations, which should lead to a slightly lower ytd growth vs. the MT target. As a result, market expectations were reset. The investment case remains solid however, with an excellent visibility. VZ Holding was weak during the month on no news. We continue to appreciate the strong fundamentals.

Top 3 contributors in the month were Polypeptide (+17.4%), Kuehne & Nagel (+4.6%), and Helvetia Holding (+4.4%). Polypeptide regained the attention of investors, thanks to its defensive growth characteristics. With one of the broadest portfolio among the peptide CDMO players, an attractive late stage pipeline, as well as the rising outsourcing trend, Polypeptide is very well placed to outperform the underlying peptide drug market, itself growing at ca. 7% p.a. Kuehne & Nagel reported Q1 results significantly ahead of expectations as yields further increased in the sea freight division. The current war in Ukraine and the new lockdowns in China, result in supply chains disruptions and port congestions, both beneficial to Kuehne & Nagel. We believe that the current situation will continue to provide tailwinds for the freight forwarding industry for at least a couple of quarters. Helvetia Holding reported robust results in line with expectations at the end of March, but surprised positively with a more generous dividend than expected, representing a yield close to 5%.

After a rebound in March, equity markets are finally catching up with reality. Supply driven issues like availability of goods, commodity price inflation etc. slowly shift to demand side worries around consumer demand and risk to growth. Market sentiment is poor and better than feared Q1 earnings delivery did nothing to change this. The growth category has taken a serious beat with many names down 50% to 60% since the highs of 2021. On the aggregate, sentiment and positioning seem not bearish enough yet for markets to stage a reversal. We remain well diversified across all styles and sectors, favoring quality companies inherent to our Entrepreneur universe squaring strong balance sheets, high margins and capital returns. These times ask for experienced stock picking along the main themes of rising inflation, slowing growth, post COVID reopening, energy dependence and ESG.