Bellevue Sustainable Entrepreneur Europe (Lux)

European equities, as measured by the SXXR, rose 2.5% in April, rebounding after the SVB failure and CS rescue. Headline inflation continued to slow to 5% and 6.9% in the US and in Europe respectively, but their core components remained elevated. The ‘flash’ Eurozone PMI rose for a sixth consecutive month to a 11-month high of 54.4. The services sector accelerated its expansion to 56.6 after 55.0 in March to a 12 month high. Manufacturing output contracted 48.5 vs 50.4, falling back into decline after two months of marginal improvement. In term of sector performances, real estate (+5.9%), insurance (+5.8%) and personal care, drug and grocery stores (+4.9%) performed best while basic resources (-4.7%), technology (-4.4%) and automobiles and parts (-1.2%) lagged the most.

Against this backdrop, the fund Increased 0.4%, (+8.9% ytd / EUR B shares), underperforming its benchmark by 203 bps  (-213bps ytd).

Main detractors in the month were ASM International (-11.8%), Merck (-5.3%) and Vestas (-6.4%). ASMI reported Q1 results that beat consensus adj. earnings by 15%, but booking felt short of expectations due to “softer end-market” conditions. ASMI now projects a single-digit revenue increase for 2023, way better than the WFE spending – anticipated to decline by a high-teens percentage. Consensus should be reduced by ca. 5% at both revenue and profit levels. Merck saw the FDA partially pause enrolment for its Phase III trial to evaluate evobrutinib for multiple sclerosis, due to a potential liver injury signal. Q1 results are expected on May 11. As for the whole turbine sector, Vestas suffered from increasing competition from Chinese players and permitting processes remaining long, implying that any noticeable inflection in orders is unlikely to be seen in 2023. 

Top 3 contributors in the month were Hannover Re (+7.4%), Ipsen (+8.4%) and Roche (+8.5%). Hannover Re rebounded with the rotation from banks into the insurance sector. Ipsen’s Q1 sales figures came in 1% ahead of street expectations. Healthy growth was witnessed in Neuroscience, while oncology also ended on positive note, despite Somatuline’s erosion and a weaker Onivyde. Despite the material erosion in Somatuline, the 2023 guidance remained unchanged. Following its more than 10% fall ytd, Roche was again sought after in a market chasing investment opportunities within the more defensive sectors.

In light of a resilient macro, both in the US and in Europe, uncertainties abound around both the timing and the severeness of a recession. While equity markets seem to price a soft landing, other segments, like oil, have corrected considerably, pricing in a hard landing. Will labor crack and when? SMEs in the US and elsewhere seem to “hoard” employees as workers remain scarce. Jobs are plentiful and US consumption has been accelerating in Q1 versus Q4. M&A is back on the map and it is worth remembering European valuations display record discounts to their US counterparts. In this challenging environment we continue to work on a diversified portfolio, searching for idiosyncratic ideas with attention to quality, moat and financial stability without overpaying.