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Quartely report Q2/2021 

Review

Despite all the prophecies of doom, the markets continued to be in record spirits in the second quarter. While the DAX failed to reach the 15,000 mark on closing price basis in the first quarter, this level was immediately exceeded on a sustained basis on April 01. Internationally, too, the most important stock indices recorded new highs. However, the high percentage gains of the two previous quarters were not matched, which is also reflected in the decline in the volatility indices. By contrast, there was movement on the inflation front, with catch-up effects from the Corona crisis resulting in a significant increase in consumer prices, which are likely to rise even further in the second half of the year.

Performance

Our equity fund is on the books since the beginning of the year with a gain of 9.82% in Swiss francs and 8.37% in euros. In comparison, the major indices: DAX +13.21%, the STOXX600 (Europe) +13.49%, the S&P500 (USA) +18.05% and the MSCI World (worldwide) +15.72% (all values in euros).

Our German Fund Award winning bond fund seamlessly continued its positive trend since the beginning of the year and already achieved a result of +5.31% in Swiss Francs and +3.91% in Euro in the first months, whereas the Bloomberg Barclays Global High Yield Total Return Index Value Hedged EUR recorded a performance of +2.26%. An analysis by Swiss Fund Data is noteworthy, according to which almost three quarters of all bond funds with the Swiss franc as reference currency are in the red this year. Incidentally, our fund ranks first in this ranking.

Current positioning

We used the first half of the past quarter primarily to invest heavily in the healthcare sector and to reweight energy stocks somewhat more heavily. In turn, we decided to take some money off the table after the good performance of the financial sector and likewise reduced basic materials stocks. In the second half of the quarter, the markets rose again somewhat. We were able to benefit from the high pharma weighting until mid-June, while the performance of energy stocks was largely positive but lagged well behind the oil price performance. Should the oil price remain at this level, we expect excellent gains from this sector in the future.

In the case of automotive stocks, we have left the weighting roughly at the level of the previous quarter. Gold mining stocks continue to lag the trend -- not atypical for the course of the markets in recent weeks -- but, as always, they are a permanent fixture in our portfolio. With a weighting of around 3%, we are well positioned here.

The topic of hedging: We have been moving towards the end of the half-year with the positions that are in place. Since there has been no significant corrective movement so far, hedges carved our a bit of performance, but the safety of the assets entrusted to us always takes precedence over aggressively chasing for profits. Based on our assessment, we still consider hedges to be appropriate and consequently continue to hedge part of the portfolio.

The shift in the overall portfolio at the end of the first quarter away from cyclical components towards a more defensive approach was basically maintained in the second quarter and we feel well positioned for the summer months.

Outlook

Skyrocketing inflation rates will continue to keep the markets busy in the coming months. Consumer prices in Germany rose by +2.5% in May, the highest rate in 10 years. The German Bundesbank is now even predicting an inflation rate of up to 4% for the second half of the year -- a challenging situation for savers, as the negative real interest rate is thus continuing to rise, eating further into traditional savings deposits and thus acting as an accelerated capital destroyer.

Many investors are asking themselves whether, in view of exalted stock market prices, it is not already too late to enter the market and thus a big mistake. We had already pointed out in our Annual Outlook 2021 that the only mistake one can currently make is to do nothing.

Rising inflation rates need by no means have a negative impact on the stock markets in the first step, as they are a sign of an improving economy and thus a welcome scenario for potentially rising corporate profits. But when the central banks start to turn up the interest rate screw, things become critical. Both the American Fed and the ECB have indicated in their latest statements that they have the problem on their radar. One thing is clear: the inflation rate will be higher in the fall than it is at present. When interest rates reach a level at which investors prefer “risk-free” bonds to equities, the first signs of a slowdown could appear on the markets. However, we are still a long way from that.

Incidentally, a slight rise in interest rates would be perfect for our bond fund. With our deliberately short modified duration, we are ideally positioned for such a scenario to cushion interest rate risks and thus continue to guarantee attractive returns for our investors.

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