Bellevue Entrepreneur Swiss Small & Mid

Swiss small and mid caps, as measured by the SPIEX Index, rose by 0.6% in September outperforming larger caps (SPI -1.6%). Following a relative weak start into the month, equities generally rebounded sustained by a combination of 3 factors: 1) a 50 bps cut from the Fed 2) a pickup in US economic data, signalling the unlikelihood of a sharp downturn for now, and 3) significant Chinese stimulus announcements, leading to a surge in local markets and China exposed stocks (Shanghai Index SSE up more than 20%). Europe was less exciting, with the Eurozone flash PMI failing to remain above the key 50 level (48.9 in September from 51.0 in August), impacted by a deepening of the downturn in the manufacturing sector (44.8 vs 45.8) while services remained in expansion territory. In Switzerland, the PMI increased sequentially to 49.9 in September from 49.0 in August, its highest level since January, with manufacturing improving sequentially (49.9 vs 49.0) while services consolidated (49.8 vs 52.9). In terms of sector performances, retail (+8.8%), insurance (+6.4%) and industrial goods and services (+1.8%) performed best, while travel and leisure (-11.1%), utilities (-4.4%) and basic resources (-4.3%) lagged the most.

Against this backdrop, the fund increased by 0.9% (CHF / B shares) in the month, outperforming its benchmark by 30 bps. This brings the ytd performance to 7.9%, a 132 bps underperformance versus the benchmark.

Main detractors in the month were Bachem (-12.3%), Roche (-6.2%) and Sandoz (-5.4%) as most healthcare names suffered in the cyclical rotation. Bachem experienced some profit taking following disappointing H1 sales and profitability levels. Although the company kept it’s FY guidance of the basis of a better H2, the high multiples leaves little room for error. After a great run of 46% since April, Sandoz experienced a broker downgrade.

Main contributors in the month were Straumann (+10.2%), Helvetia (+8.7%) and Sulzer (+5.8%). Straumann is expected to post good Q3 figures in October on the back of ongoing good patient flow and strong China demand and a guidance upgrade could be in the cards. Helvetia benefited from a positive initiation and another recent broker upgrade. The non-life business is attractive and profitable, with potential for further improvement. Also, solvency ratios are solid. H1 figures were slightly above expectations. Continuous positive momentum is expected for Sulzer’s order Q3 order intake release in October. The service business should benefit from modernization projects as the demand for energy-efficient processes remains high. The company raised its 2024 outlook for order intake to 9-12% in July.

After the SNB move, the ECB is expected to be next, maybe even before the US. Compared to the Fed, the European Central Bank finds itself in a less complicated situation. The business cycles of the US and Europe have decorrelated a lot in the last 6-12 months and while growth expectations rise in the US, it is the opposite in Germany and a large part of Europe. Another positive factor for Europe and Switzerland is China. The economic momentum seems less fragile and we have witnessed some positive macro data. The Caixin China General Manufacturing PMI increased to 51.1 in March, the fifth straight month of growth in factory activity. Copper also reached an 11-month high. This should also bode well for Swiss companies and industrials in particular.