Bellevue Entrepreneur Swiss Small & Mid

Swiss small and mid caps, as measured by the SPIEX Index, rose by 0.6% in the month, underperforming larger caps (SPI 0.9%, SXXR +1.6%). The month got off to a rough start, with volatility spiking to levels last seen in 2020, impacted by the combination of a weak US job report and the unwinding of the yen carry trade sending Japanese equities down 12% on a single day. Calm rapidly returned, underpinned by better US economic data (robust retail sales, core inflation down to 3.2%) and a clearly dovish message from J. Powell at Jackson Hole symposium. Most equities finally rose in August, with both S&P 500 and US Treasuries posting a 4th consecutive monthly gain. The Eurozone flash PMI increased to 51.2 in August (from 50.2 in July), sustained by a solid increase in business activity in services (53.3 vs 51.9) while manufacturing continued to fall at a broadly unchanged rate (45.6 vs 45.8). In Switzerland, the PMI rose to 49.0 in August from 43.5 in July, its highest level since January with both services (52.9 vs 44.7) and manufacturing (49 vs 43.5) improving sequentially. In terms of sector performances, real estate (+5.2%), construction and materials (+3.9%) and insurance (+3.5%) performed best, while automobiles and parts (-10.7%), media (-6.6%) and personal care, drug and grocery stores (-5.5%) lagged the most.

Against this backdrop, the fund increased by 0.4% (CHF / B shares) in the month, slightly underperforming its benchmark. This brings the ytd performance to 7%, a 167 bps underperformance versus the benchmark.

Main detractors in the month were Gurit (-16.8%), Medmix (-13.5%) and SoftwareOne (-10.2%). Gurit delivered H1 results slightly below expectations as the wind division continued to be impacted by challenges with some Western OEMs and remaining blade inventory depletion. The company expects to reach the bottom of its FY revenue guidance, suggesting that the situation is now stabilizing. SoftwareOne delivered H1 EBITDA 3% below expectations and tweaked down its FY growth guidance to 7/9% (vs 8/10%). This umpteenth guidance revision was disappointing but the underlying performance remains decent (EBIT growth trend >10%), and the valuation very appealing (EV/EBIT c10x) for a cash-rich company whose board is openly trying to sell the company.

Top 3 contributors in the month were Huber+Suhner (+12.0%), Swissquote (+8.1%) and VZ Holding (+2.9%). Huber+Suhner delivered H1 results above expectations, marked notably by a strong rebound of orders – up +5% yoy and 42% higher than H2 23. For 2024, the company cautiously confirmed its guidance of positive organic growth, implying higher sales in H2 implying a positive revision of the consensus. Swissquote released excellent Q2 results with record new client openings and 10% growth in NNM at CHF 3.8 bn. NII tended weaker as expected but crypto income exceeded expectations. The stock is trading at ca. PE 2025 of 14x, which we deem unexpensive given the diversification of income sources, the operating leverage in the model and the excess cash allowing for attractive M&A. VZ Holding’s H1 results also surprised positively. 10% AUM growth and better margins due to positive top line trends and a controlled cost base. NNM momentum is working in favour of the company and could accelerate in H2. We continue to like the defensive stable growth business model and the good management execution.

After the SNB move, the ECB is expected to be next, maybe even before the US. Compared to the Fed, the European Central Bank finds itself in a less complicated situation. The business cycles of the US and Europe have decorrelated a lot in the last 6-12 months and while growth expectations rise in the US, it is the opposite in Germany and a large part of Europe. Another positive factor for Europe and Switzerland is China. The economic momentum seems less fragile and we have witnessed some positive macro data. The Caixin China General Manufacturing PMI increased to 51.1 in March, the fifth straight month of growth in factory activity. Copper also reached an 11-month high. This should also bode well for Swiss companies and industrials in particular.