Bellevue Entrepreneur Swiss Small & Mid

Swiss small and mid caps as measured by the SPIEX Index declined 0.7% in February (SPI +2.4%) taking a breather after a very strong January. Europe pursued its outperformance (SXXR +3.4%, S&P 500 -1.4%, MSCI World -0.8%), supported by the perspective of the end of the war in Ukraine, encouraging economic data and market friendly results of the German elections. Conversely, the US consumer showed signs of fatigue, as US retail sales surprised negatively (-0.5% vs +0.3% expected) while the threat of higher tariffs led to growing fears of inflation. The Magnificent 7 lost 8.7%, their worst monthly performance since Dec 2022. Encouragingly, European PMIs remained above 50 for a 2nd straight month (stable at 50.2), led notably by the manufacturing component (9 mn high), with improving trends in key markets like Germany, France and Italy. In Switzerland, the procure.ch PMI increased to 49.6 in February from 47.5 in January, beating forecasts of 48. The manufacturing sector is now close to growth, as improvements have occurred in production, orderbook and purchasing volume. From a market sector perspective, consumer staples (+6.5%), consumer discretionary (+1.4%) and utilities (+0.7%) performed best, while materials (-6.1%), healthcare (-4.5%) and communication services (4.5%) lagged the most.

Against this backdrop, the fund declined by 0.8% (CHF / B shares), in line with the SPIEX.

Main detractors in the month were Sandoz (-9.4%), Burckhardt Compression (-9.7%) and Kardex (-7.6%). After a stellar performance since late 2023, Sandoz experienced some weakness. Sentiment suffered following insecurities around tariffs, pricing erosion and specific US biosimilar issues. Also, guidance for 2025 was below consensus. We are underweight the stock. Burckhardt is facing a soft patch on no fundamental news. The company would be a beneficiary of increased spending on European energy infrastructure for both transport and storage, compressors being an essential component of LNG terminals. Kardex is a high quality intralogistics player with more than 70% exposure to Europe. Automation in the logistics value chain is the structural driver of growth. With good growth, strong balance sheet and top notch ROIC, the share is not cheap but we see further growth potential.

Top 3 contributors in the month were Lindt (+8.5%), Also Holding (+10.5%) and Helvetia (+5.8%). Lindt is navigating the cocoa storm quiet well on the back of limited cocoa exposure amounting to 10% of sales. Also, premium positioning implying favorable price elasticity and good profitability levels enable the group to better manage the high volatility of the raw material. Also’s CHF 285-365 mn 2025 EBITDA guidance implies a 10% to 15% organic growth, suggesting that the trough of the IT cycle has been passed as the post pandemic renewal cycle may kick off soon. At 12 month forward EBIT of 10x, valuation looks attractive at this point of the cycle. Helvetia is in good shape and has set itself ambitious growth and ROE targets for 2027. We appreciate the outstanding integration synergies and find the exposure to the Spanish market attractive.

A lot is happening for Germany and Europe. To quote Bloomberg: “Sometimes you can feel the global economy’s tectonic plates moves under your feet. This is one of those times”. This time it’s about Germany and the “whatever it takes” moment of Friedrich Merz. The rapidity and magnitude of the announcements to date are a strong fuel for European equities, especially small and mid caps and Swiss companies will benefit as well. This narrative will continue and it is an important paradigm shift in fiscal and pro-growth policies. We expect small and mid caps to benefit more than large caps because of their higher cyclical exposure, with industrials being ca. 30% of the universe. We are well positioned as the Bellevue Entrepreneur Swiss Small & Mid boasts strong stock picks in both the industrials and basic materials space, benefiting from a multi-trigger situation combining a bottoming-out of early indicators, growth and infrastructure investments in Germany, defence programmes in Europe and a potential Ukraine peace resolution.