Bellevue Entrepreneur Swiss Small & Mid (Lux)

Swiss small and mid caps, as measured by the SPIEX Index, increased by 3.3% in  May (SPI +6.1%, SXXR +3.3%, MXWO 4.2%). Except for lagging small-caps indices, May marked a new historical record for most Western indices, underpinned by strong Q1 results and a Fed meeting that proved less hawkish than anticipated. US inflation eased, with core CPI down to 3.6% from 3.8% in April. The Swedish Riksbank was the second G10 central bank after the SNB to cut rates, fuelling anticipation of other cuts to follow soon, including the ECB in June. The Eurozone flash PMI was up for the 7th consecutive month, rising to 52.3 in May from 51.7 in April, while Core inflation was up 20 bps mom to 2.9% in May, following nine consecutive months of declines. In Switzerland, the PMI rose to 46.4 in May, more than recovering what it lost in April, with services firmly in positive territory (55.6) and manufacturing still negative but improving significantly mom (46.4 vs 41.4). Sector wise, technology (+11.0%), insurance (+9.5%) and financial services (+7.4%) performed best, while travel and leisure (-2.0%), real estate (-0.7%) and automobiles and parts (+0.3%) lagged the most.

Against this backdrop, the fund rose 4.1% (CHF / B shares) in the month, outperforming its benchmark by 74 bps. This brings the ytd performance to 5.9%, a 55 bps underperformance versus the benchmark.

Top 3 contributors in the month were Swissquote (+11.9%), Also Holding (+15.4%) and SFS Group (+13%). Swissquote maintained its upward trend with strong operational and financials performances underpinning the continuous rerating of the shares. Despite its strong ytd share rally (+34.6%), Swissquote is still trading on a 2024 PE of 13x, which underestimates its midterm growth potential. Also hosted a CMD with the recently nominated new CEO. While Also and most of its peers are stressing the weak short term environment, we are starting to see green shoots of recovery in the PC and consumer markets that should become more a meaningful tailwind in H2. The fastening specialist SFS and one of our favorite early cyclicals benefited from stronger industrial PMIs readings. SFS is geared to the end markets of industrial, construction, automotive and consumer electronics. A demand recovery, together with the gradual ending of destocking should benefit the top line. In the meantime, self-help and cost savings should back the margins.

Main detractors in the month were Straumann (-4.9%), Lindt (-0.9%) and V-Zug (-8.7%). With 3.7% organic growth in the US for Q1, Straumann missed consensus expectations. The APAC region’s stellar growth from depressed levels was enough to overcompensate at group level but the reiteration by the management of HSD organic growth guidance for FY 2024 was not enough for the market and implies a slowdown in the coming quarters. Lindt underperformed in the cyclical rotation. The H1 revenue growth is anticipated below the FY guidance of 6-8%, impacted by destocking and some trading down by US consumer.

Eurozone GDP grew by 0.3% in Q1. This was surprisingly strong, in fact the strongest growth since Q3 2022 when the energy crisis started. Even Germany bottomed out and leading indicators point to a continuation of the recovery. This brings back investor’s appetite for small caps, cyclicals and value. The latest positive earnings season and rising EPS revisions have been of further support. Peter Oppenheimer from Goldman Sachs praised this week the benefits of diversification within equity portfolios in what he called a «Pick and Mix» style. We couldn’t agree more. The end of the zero interest rates regime allows for a barbell approach mixing quality profitable growth stocks together with selected deep value (but also quality) names. In this spirit we very consciously mix GARP with growth and value in our Bellevue Entrepreneur Switzerland portfolio, this year adding more Sulzer and Burckhardt Compression or Clariant and Bachem.