Bellevue Entrepreneur Switzerland (CH)

Swiss equities, as measured by the SPI, reverted the positive July trend and fell 3.1% in the month somewhat better than global markets. The bearishness was underpinned by the more hawkish statements by Fed Chair Powell in Jackson Hole, reaffirming the Fed’s firm inflation-fighting intentions even at the risk of over-tightening. In the EZ inflation rose to a record 9.1% in August with core inflation up to 4.2% versus 4% expected, signaling the likelihood a higher 75 bps hike for the upcoming ECB meeting. Swiss inflation data was mild by international standards, reaching 3.5%, at the higher end of expectations. Swiss PMIs also surprised positively, with Industry PMI only slightly weaker to the level of 56.4, while Service PMI rose further to reach 56.7. Record increases in gas and electricity prices risk dragging Europe into recession as signaled by the EUR/USD hitting a 20-year low, falling below parity. Oil was lower with WTI down 9.2%. On a more positive side, soft commodities weakened, reverting to levels seen before the outbreak of the Ukraine war. Sector performance presented a patchy picture, with utilities (+8.2%), financials (+0.4%) and communication services (-0.7%), holding up best while industrials (-7.5%), information technology (-4.8%) and materials (-4.6%) lagged the most.

Against this backdrop, the Fund fell 4.7% (CHF / A shares), a 171 bps underperformance versus its benchmark.

Main detractors in the month were Zur Rose (-32.5%), Sonova (-24.1%) and Straumann(-15.7%). Zur Rose fell sharply on new concerns around the introduction of the e-prescription in Germany. Local media reported that Schleswig-Holstein, scheduled to start the program on September 1, was pulling out due to concerns about patient’s data protection. With some delay, the German government reacted, signaling a speedy roll-out and confirming the safe handling of e-scripts via pharmacy apps. Finally, on September 1, Zur Rose announced the issuance of a convertible and a capital increase which was fully subscribed, addressing the potential refinancing issue of 2023. Sonova and Straumann both corrected strongly on the publication of their Q2 results. Sonova cut FY guidance mainly driven by a weaker US market and a negative impact from the geographic and channel mix on margins, exacerbated by higher freight and component costs. Straumann left FY guidance unchanged, but this clearly disappointed the market. Also, comments about a softening of the US clear aligner demand were taken as a potential leading indicator for Europe. Having been considered so far as relative safe heavens, the names suffered all the more by a de-rating of their rich valuation multiples.

Top performers in the month were U-Blox (+22.2%), VP Bank (+8.4%) and Aryzta Group (+5.8%). U-Blox, the specialist of IoT chips and modules, continued to enjoy a strong share price momentum thanks to a strong H1 beat and another guidance hike. Market demand is further accelerating across all regions and application sectors, and the new products have found very good response, boding well for further design wins. VP Bank reported figures pretty much in line with expectations, reassuring the market. This helped the stock rebound in August and recoup the losses from previous months. Aryzta benefited from a broker comment regarding encouraging channel checks pointing towards positive business developments in the second half of this year.

“Everything is driven by macro, but no one really knows what the macro is going to be”. Interest rates are fundamental to the different market style returns. Low multiple stocks (value) gain over high multiple stocks (growth) when interest rate rise. In this cycle however, timing and magnitude of the interest rate moves are very hard to predict and the relative performance of value vs growth follows the near erratic ups and downs of rates from month to month. Growth stocks multiples have come down significantly since 2021 but remain well above historical average. Value stocks on the other hand might be cheap but valuation alone is not enough, especially if it comes with weak stability in the potential scenario of a future earnings recession. At present we feel the discussion of value vs growth is less relevant for alpha generation and we want to focus bottom-up on cashflow resilience in the face of overall growth and inflation headwinds. We look for companies with high FCF yields and good cash conversion in attractive market niches.