MARKET REVIEW
The Swiss market, as measured by the Swiss Performance Index (SPI), lost 1.91% in April. The Swiss small & mid cap index (SPIEX) gained 0.45%. This compares with a 0.89% gain for the MSCI World Index (NDDUWI), consisting of a 0.54% loss for the MSCI USA index (NDDUUS) and a 1.36% loss for the MSCI Europe (MXEU) index. However, the US Dollar index (DXY) lost 4.55% while the Morgan Stanley CHF Trade Weighted index (MSCECHTW) gained 4.31%. In CHF, the MSCI World index lost 6.20%, the MSCI USA index lost 7.52% and the MSCI Europe index lost 3.67%.
April was marked by extraordinary volatility in global equity markets, driven primarily by escalating trade tensions, policy uncertainty, and shifting expectations for economic growth and monetary policy. On 2 April, dubbed “Liberation Day”, US President Trump announced tariffs on a wide range of imports, which negatively surprised the markets with their breadth and severity. This announcement triggered a sharp global equity selloff, with more than USD 9 trillion in market capitalisation wiped out in just two days. China responded with reciprocal tariffs, escalating fears of a full-blown trade war. The VIX volatility index skyrocketed to 52.3 on 8 April, and the S&P 500 lost more than 12% in six days.
Amid mounting market turmoil and a sharp rise in US bond yields, with the 10-year UST gaining 50 bps in a week to an intra-month high of 4.49%, President Trump declared a 90-day reprieve on the new tariffs on the evening of 8 April to allow time for negotiations. This pause, along with carve-outs for key sectors, helped stabilise markets and led to a significant rebound in equities. Stronger-than-expected corporate earnings also helped. In the technology sector, for example, both Meta and Microsoft reported better-than-expected results and confirmed their intention to continue investing significantly in data centres.
In terms of style factors, cyclicals outperformed defensives globally, in the US and Europe, but not in Switzerland. Large caps outperformed small caps globally and in the US, but not in Europe or Switzerland. Growth outperformed value globally and in the US, but not in Europe or Switzerland. Low volatility and momentum strategies fared well while quality lagged.
PORTFOLIO ACTIVITY
In April, we sold our holdings in Barry Callebaut, dormakaba, Kardex and SIG Group while adding Baloise and Sonova to the portfolio.
PERFORMANCE COMMENT
LO Funds–Swiss Equity’s institutional share class finished April with a return of -1.96%, which represents an underperformance of 5 bps compared to its benchmark, the Swiss Performance Index (SPI TR).
As a reminder, the Fund reports performance net of withholding tax on dividends vs. gross of withholding tax for the benchmark (35% withholding tax). The headwind equals to some 85-105 bps annually (assuming a dividend yield of 2.5-3.0%), most of which comes in March-May.
Our overweights in Belimo, Lonza and PSP Swiss Property were the best contributors to relative performance in the month. At the same time, overweights in Temenos and DKSH, alongside the UCITS-imposed underweight in Nestlé, detracted from relative performance. In the SPI, defensive sectors Communication Services, Utilities and Real Estate held up best, while IT and Consumer Discretionary underperformed.
QUARTERLY OUTLOOK
Uncertainty and volatility are likely to persist in the months to come. While markets welcomed President Trump’s 90-day tariff reprieve, there is no guarantee that trade negotiations will succeed. Economic data and corporate earnings also become more difficult to read to the extent that they are influenced by pull-forward effects.
Europe and Switzerland are by no means immune from this, but Germany’s approval of infrastructure spending, release of the debt brake, and the EU’s rearmament plan at least provide some hope. We are more concerned about the indirect rather than direct effects of potential tariffs for our portfolio companies as many have local-for-local manufacturing and services but depend upon economic growth.
