Bellevue Entrepreneur Swiss Small & Mid (Lux)

Swiss small and mid caps, as measured by the SPIEX, rose 1.5% in February, along positive European equities (SXXP +1.9%, MSCI Europe Small +2.75%), helped by China reopening and easing energy concerns. US and global markets receded (SPX -2.5%, MXWO -2.4% both in USD) as stronger economic data reignited fears of tighter monetary policies for longer and ultimately recession angst. Longterm rates resumed their upward trend, with the German Bund back to 2.65% and treasuries up 41 bps to 3.92%. In Switzerland the 10Y bonds finished at 1.47%, up +18 bps. The labour market remains tight with unemployment rates at decades lows. The flash Eurozone PMI Composite Index rose for a fourth successive month, climbing to 52.3 (50.3 in January). The improvement was led by services (53.0, 50.8 in Janaury), while manufacturers returned to expansion mode for the first time since last May. In Switzerland the PMI for the manufacturing industry just entered contraction territory in January and stayed below 50, while services remained firmly in expansion mode (55.3) Q4 Swiss GDP flatlined but remains larger than pre-COVID levels, outperforming European peers thanks to stronger domestic demand.

Sector wise, utilities (+4.3%), industrials (+3.1%) and financials (+3%) performed best, while communication services (-3.6%), real estate (-3.1%) and healthcare (-0.8%) lagged the most.

Against this backdrop, the fund rose 2.0%, 11.8% ytd (CHF / B shares), outperforming its benchmark by 56 bps (+267 bps ytd).

Main detractors in the month were Roche (-4.7%), Vontobel (-9.9%) and U-Blox (-7.2%). Roche was under pressure during the month, due to a large placement by a member of the family pool. Vontobel reported FY22 figures slightly below expectations. Guidance was cautious in to 2023, in view of the negative impact of lower AuM on management fees in H1. After a very strong 2022, U-Blox, designer of IoT chips and modules, has been a laggard for the 2nd month in a row, but we have learned to be patient with the stock. Backed by a strong order book, the company confirmed 2023 will be another year of growth sustained by positive trends in auto and industrials, two sectors representing 90% of the group sales. This suggests significant upside potential to an overly skeptical consensus.

Top 3 contributors in the month were Zur Rose (+45.4%), Kuehne & Nagel (+10.8%) and Bossard (+11.8%). Zur Rose benefited from the announcement of its divestment of the Swiss business to the Migros/Medbase group. This significantly strengthens its capital structure, making the company net debt-free, and removing any refinancing risks. Kuehne & Nagel reported Q4 slightly below consensus, but provided a very bullish mid-term (2026) guidance pointing to EBIT CAGR of 17-19% vs the 2019 base, suggesting more than 50% upside to the mid-term consensus estimates. Bossard performed strongly in correlation with improving European PMIs. The company also reported strong H2 figures, with a 16.5% EBIT beat and margin at 12.3%, well ahead the 11.4% estimated by consensus.

Europe equities continue to outperform being much more geared to rising interest rates and China reopening than the US. This also explains the strong outperformance of the SPIEX (+9.3% ytd) vs. the SPI (+4.1%). In the SPIEX, industrials/financials represent 48%, while healthcare/staples is 25%. This is the opposite in the SPI (28%, resp. 54%), which is why it underperforms in an environment of rising rates. There are some good news from the European energy front. In the aftermath of the Ukraine war European natural gas prices hit all-time highs in the preparation of a potentially cold winter combined with supply shortages. Six months on, the picture has dramatically changed with gas prices down by 85% on the back of warmer weather and lower consumption. Gas stocks remain high and the January stockpile is at the top end of the seasonal range of the past 10 years. This means Europe can reaching full capacity again during the summer 2023, the risk of another gas price spike is low and the next winter can be managed.