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Quarterly report Q1/2021

Review

In the rush of the 2020 year-end rally, markets continued to soar at the beginning of the quarter before a small consolidation at the end of January. Hopes of an end to lockdowns, significant progress in the vaccination against the corona virus and a further USD 1.9 trillion corona aid package from the new US President Joe Biden then continued to boost the markets. The DAX even pulverized its old record highs and once again set an exclamation mark. The temporarily high volatility returned to very moderate levels towards the end of the quarter.

Performance

In the first quarter, our equity fund achieved a gain of 8.00% in Swiss francs and 5.96% in euros. The difference is due to the appreciation of the Euro, especially in February. As of 01.04., the euro-franc exchange rate was 1.112. In comparison, the major indices: DAX +9.99%, the STOXX600 (Europe) +7.97%, the S&P500 (USA) +11.34% and the MSCI World (worldwide) +8.75% (all values in euros).

Our bond fund posted a gain of 2.1% in Swiss francs and -0.12% in euros in the first three months of the year, whereas the Bloomberg Barclays Global High Yield Total Return Index Value Hedged EUR posted a negative performance of -0.65%. On March 18, our fund distributed an amount of 5.60 Swiss francs/unit, resulting in a payout yield of approximately 4.5%.

In this context, we are particularly proud of another award. After the Thomson Reuters Lipper Award two years ago, the fund now won the German Fund Award in the category bond funds global with the rating “outstanding“. For every investor the certainty of having invested in an excellent investment, for us a nice confirmation that we are absolutely on the right track with our strategy.

Current positioning

We extended our hedges again until mid-February and then let them run into the rising market at the end of the quarter. Even though the hedges have put some pressure on performance, we believe they are essential in the current market environment.

In the first two months, our small caps in particular performed well and contributed to performance. After our positions in oil, which we built up towards the end of the year, performed well, we decided to take some money off the table here and lock in profits. For the same reason, we did the same with the Technology and Materials sectors. We invested the freed-up capital primarily in Consumer Staples.

In the banking and insurance sectors, as in automobiles, we have left the weighting per se almost unchanged, although we have rotated the individual stocks within the sectors. Gold has clearly underperformed, as is typical in such market phases, and currently has a weighting of around 3% in the portfolio.

All in all, the much more cyclical positioning at the beginning of the year gave way to a somewhat more defensive orientation during the quarter.

Outlook

Crash prophets are currently in high season. This is not surprising when one considers that the DAX has gained a whopping 80% since the lows in March 2020. Of “epic financial bubbles”, “extreme overvaluations”, “explosive price increases” and even “hysteria” can be read and heard. More and more experts are coming on the scene to warn of a big crash. So is the party drawing to a close and is the big bang just a matter of time?

First, the valuations. It is true that some companies have reached impressive levels, and this can be a legitimate cause for concern. The record levels reached in some cases on the stock exchanges suggest a huge upswing, but by no means all companies in this world are trading at all-time highs. Rather, the record-breaking performance of various indices has been driven by individual sectors that have seen disproportionate gains in value. In other words, there is still room for improvement across the board.

Second, interest rates. Even though there have been slight increases since the beginning of the year, the landscape per se is still the same. This is because real interest rates remain negative and continue to destroy savings and retirement provisions. Already at the end of 2019, our statement was “Those who cannot handle price fluctuations will find it very difficult to make money in the coming years.” Nothing has changed in this regard to date.

Third, the states and the central banks. The old stock market adage “Don’t fight the FED” applies, never position investments against the central bank. Because at the end of the day, the central bank has the deeper pockets -- always. In recent months, central banks around the world have once again demonstrated what they are capable of. Namely, to flood markets with liquidity as rarely before, which in the end resulted in sharply rising stock market prices. Are support funds, Corona bailouts and rescue packages paving the way to inflation and demonetization? Very likely in the medium term. Investments in assets that offer some protection against inflation, such as equities, therefore make a lot of sense.

Three reasons, then, why the markets can continue to rise. Nevertheless -- we are anything but risk-blind. The positioning of many investors, whether private or professional, can undoubtedly be described as “risk-on”. We are fully aware that the ice on which we all move has become significantly thinner. With a healthy mix of investments on the one hand and hedges on the other, we continue to live up to our principle: to achieve substantial and sustainable growth for our customers’ assets while offering the greatest possible security and continuity.

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