Bellevue Entrepreneur Switzerland (CH)

Swiss small and mid caps, as measured by the SPIEX Index, fell 1.5% in April (SPI -2.4%, SXXR -1%, MXWO -3.8%). After the strong October 2023 rebound (+15% from the lows), markets took a breather on the back of sticky US inflation and geopolitical tensions in the Middle East. In Europe and Switzerland data were mixed. Encouragingly, PMIs in Europe confirmed their upward momentum. The Eurozone flash PMI was up for the 6th consecutive month, rising to 51.4 in April from 50.3 in March, driven again by services. The Swiss PMI suffered a sudden drop to 41.4 from 45.2 in March, its weakest level since last October, probably reflecting the delayed impact of the CHF strengthening on the competitiveness of export-led corporates. Sector wise, utilities (+2%), materials (+1.6%), and consumer staples (+1.5%) performed best, while consumer discretionary (-7.2%), information technology (-6.4%), and healthcare (3.1%) lagged the most.

Against this backdrop, the fund fell 2.1% (CHF / A shares) in the month, underperforming its benchmark by 56 bps. This brings the total YTD performance to +1.8%, a 122 bps underperformance versus the benchmark.

Main detractors in the month were Straumann (-14.5%), Pierer Mobility (-19.2%) and Swatch Group (-7.5%). Straumann fell 11.4% on the publication of its Q1 results. At 15.1% organic growth at the group level was better-than-expected, but North America disappointed with a growth of 3.7% (vs consensus of 6.5%). The group nevertheless enjoys a stronger-than-expected momentum in the APAC region, mainly in China, and reiterated its FY2024 group guidance for organic growth in the HSD range and core EBIT margin of 26%. Pierer Mobility was very weak on no specific news. We had reduced our holding significantly at the beginning of the year and continue to monitor the group closely to determine the next entry point. 2024 is a year of transition, but we expect 2025 to show a renewed momentum with improving profitability. Although visibility on 2025 is still limited, valuation looks increasingly attractive with EV/EBITDA 25E multiples of ca. 4x. The performance of Swatch was poor along with the weak momentum in the luxury goods space (LVMH -7%, Richemont -7%, Moncler -7.3% and Kering -9.9%) and Q1 sector data pointing towards a slow start to the year. While visibility on Chinese luxury consumption remains limited, some positive comments have been made. Q1 is generally a trough quarter in the sector and one could expect a gradual improvement in the quarters to come.

Top 3 contributors in the month were Sandoz (+14.5%), Barry Callebaut (+13.4%) and Clariant (+13%). Sandoz benefited from sell-side notes pointing to the improving biosimilar outlook, leading to a more positive earnings momentum. Barry Callebaut Q2 23/24 results highlighted a resilient volume growth (+1%), despite the cocoa price surge. In addition, the company reiterated its FY guidance which was clearly seen as a positive. Also, following the speculative-led surge in cocoa prices year-to-date, a strong reversal occurred from April 19, providing a relief to the whole industry. Clariant reported a good set of Q1 figures with sales in line with consensus, but EBITDA 15% above. EBITDA margins at 17.1% increased +320bps yoy, vs cons at 14.7%, reflecting the positive impact of lower raw materials on margins and also the past cost cutting exercises. At this stage, management is reiterating its FY outlook with confidence.

Bond markets were volatile again in April and yields kept increasing. On a positive note, Swiss small and mid caps were down less than the broader market despite rising yields. Despite the US Fed narrative losing momentum, the broader global recovery is intact and World PMIs are expected to remain above 50. Also, the destocking and inventory correction seems to have found an end. GDP growth picked up a little both in the EU and China and activity levels improve. From a PMI momentum point of view, Europe vs US will turn to the positive and European companies should benefit from more positive relative top line and EPS delivery. This should also benefit Swiss exporting industrial companies. Our stock picking in industrial names has been inspired by the structural growth theme of Global Infrastructure Capex needs. We now expect the positive cyclical momentum to further benefit this space.