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Quarterly Report Q2/2022

Review

In the first quarter, the start of the Russian attack on Ukraine led the markets down, and the second quarter was not spared from a downward demolition. However, the latter was more owed to the negative overall situation.

It was not only the war in Ukraine that put pressure on prices. Inflation at levels last seen more than 40 years ago, interest rate hikes by various central banks (FED, BoE, SNB) and exploding energy costs not only spoiled many investors’ appetite for new equity investments. On the contrary, sales were initiated in rows and across all sectors, which led to sometimes enormous price drops. To cite a few examples: The U.S. stock market index S&P 500 ended the first half of the year with the worst result in 52 years, the technology exchange Nasdaq recorded almost -30% and the German stock index DAX has never lost as much (-12%) in a June as it did this year since its inception.

On the bond side, there was a crash the likes of which has not been seen in decades. Whether investment grade or high yield bonds, across the board prices fell almost unchecked from April to June, leading to bitter losses. Even German government bonds, whose AAA rating makes them particularly safe, suffered significant price losses as a result of the interest rate hikes and are now trading well below par in some cases.

Even real estate funds, once a popular form of investment because of their low volatility and often offering higher returns than fixed-income investments, which continued to perform positively even in low-interest phases, posted a negative performance, which clearly shows how broad the current correction is.

The cryptocurrency sector has also been hit hard. Some representatives of this genre simply experienced a meltdown, even bitcoin as the “original father” of this speculation segment has recorded painful losses of more than -60% since the beginning of the year and has completely lost its nimbus as a protection against inflation. Trading platforms have also been deep in the red since the beginning of the year, such as Coinbase with over -80%.

Gold lived up to its reputation as a “crisis currency” once again this year. Nevertheless, it could not defend the record prices of March directly after the outbreak of war and lost from April to the end of June about 8%. Historically, however, the precious metal is still trading at very high levels. After peaking in March, oil prices initially entered a consolidation at the beginning of the second quarter, but then gradually picked up again and are still at the levels of 2013/2014.

Performance

Since the beginning of the year, our equity fund has posted a performance of -9.57% in euros and -12.88% in Swiss francs as of the end of the second quarter.

This compares to the major indices: the DAX -20.86%, the STOXX600 (Europe) -15.51%, the S&P500 (USA) -14.27% and the MSCI World (global) -14.55% (all values in euros). Thus, we were again able to significantly outperform the overall markets. Two factors were decisive for this: firstly, a strongly defensive orientation of the overall portfolio throughout the quarter, and secondly, a functioning hedging strategy that protected our investors from major losses.

Our bond fund was down 19.16% in the Swiss franc tranche and 19.75% in the euro tranche since the beginning of the year in the wake of the general bond crash, as was the Bloomberg Barclays Global High Yield Total Return Index Value Hedged EUR, which was down -16.06%.

Over the entire three months, the quarter was characterized by enormously widening spreads, limited liquidity and, in some cases, high selling pressure, especially from institutional investors.

Current positioning

At the beginning of the second quarter, we became even more cautious, reduced risk even further and reduced equities in favor of cash. We returned to the market from the middle of the quarter by expanding existing positions in financial, oil and consumer stocks. In addition, we decided to selectively buy back industrial stocks that we had reduced in the second half of 2021.

We divested ourselves of reopening plays in the so-called BEACH sector (booking, entertainment, airlines/airports, cruising and hotels) after the outlook deteriorated rapidly. We realized some gains on our hedging strategies and extended them to the end of the year. Should markets continue to slide, we are thus well positioned and once again able to adequately cushion impending losses. We continue to believe that energy prices will remain high in view of tight inventories and that the oil price is also unlikely to fall. For the time being, we are therefore maintaining our strong weighting in energy stocks.

As wage negotiations are also becoming tougher, we expect inflation to remain high due to increasing wage increases. We are following the interest rate development with concern and continue to invest in banks and insurance companies, as they will benefit at least partially from interest rate increases. Some technology and industrial stocks, which seemed very expensive to us last year, have meanwhile suffered such price losses that we are gradually considering them for investment again. For this reason, we are starting to buy stocks with a solid balance sheet, structural growth and good management again.

Annual Outlook 2021 - Wydler Asset Management Assets Grow

Outlook

The summer months are often poor in topics, but this year there will certainly be no summer slump in terms of news.

What can we expect over the next few months?

First of all, there is the interest rate front. We assume that the ECB will initiate a turnaround in its interest rate policy as early as July with a first upward interest rate step. This is good news for traditional savers, as it could herald the end of negative interest rates. However, this would still not create a completely different environment.

Energy security as an issue will definitely keep us busy for some time to come. Ever since the German Minister of Economics, Habeck, declared the alarm level of the gas emergency plan, it should have become clear to everyone that the summer could be hot, and not just from a purely climatic point of view. After all, the chemical industry in particular is heavily dependent on gas as an energy supplier. Interruptions in supply could lead to disruptive situations, specifically production stoppages, in many companies. For every private household that depends on gas (in Germany, this is around one in two), the cost of energy supply will at least double from January 2023 at the latest.

In addition, we need to keep an eye on the development of inflation. Will we still see double-digit figures or have we already passed the peak? In individual sectors, such as the construction industry, the enormous price increases have already left clearly negative patterns and are already leading to recessionary scenarios. When prices rise significantly, the question is always how long consumers will -- or can -- continue to afford significantly more expensive goods. In the short term, therefore, signs of a slowdown in economic development are also conceivable here.

The disrupted supply chains (caused by the zero-covid strategy in China and the resulting massive shutdowns of entire districts) also continue to weigh on many sectors. Nevertheless, we see an overall easing of the situation, albeit only slightly. However, despite a certain recovery, the shortage of personnel in various sectors could lead to bottlenecks, especially over the vacation season, and thus to a delay in a positive development.

And, of course, there remains the latent fear of new Corona variants, which could spoil our summer and lead to renewed cutbacks in the fall. On the positive side, however, the last mutations were contagious, but only in rare cases had dramatic consequences. It seems that society has learned to live despite and with the virus and to return to largely normalized daily routines.

Capital markets

The poor mood on the capital markets is basically a good signal for us. Of course, there is still a whole host of uncertainties, and uncertainty is known to be poison for the markets. In concrete terms, this is expressed in sometimes exorbitant fluctuations that still surprise even us professionals on some days. Have we already seen the lows or are we in for another big sell-off? This question cannot be answered seriously. And that is exactly why it is our task to protect your assets as best as possible against new downward distortions, but at the same time to recognize opportunities and to make consistent use of them.

Especially in times of inflationary tendencies, stocks are and will remain an integral part of any portfolio. We are fully aware that we will see further price increases in various areas. Whether all existing risks are already fully priced in today and reflected in the valuations cannot be answered seriously. Nevertheless, our belief in the stock market as a key asset class remains unbroken. We act proactively, quickly and consistently, always with hedges to protect your assets.

The crash in the bond sector will go down in the history books as historic. Especially in the case of corporate bonds, real economic effects and fundamental data were factored into valuations, and far more attention was paid to the credit component than to pure earnings potential. In our view, this creates idiosyncratic performance opportunities: An entry into bonds at the current massively reduced levels clearly offers more opportunities than risks in the medium term. After all, the night is never as dark as it is just before daybreak. Act anticyclically and invest when others lose their nerve and sell.

Finally, allow us to point out (once again) the weakness of the euro, which has persisted for many years now. Not only against a classic hard currency like the Swiss franc, but now also against the US dollar. In both cases, we see a remarkable and therefore also noteworthy slide of the euro towards parity (i.e. an exchange rate of 1:1), last week the euro already briefly fell below parity against the franc. In consequence, this will (after an expected technical countermovement) probably bring misfortune in the sense of a further losing value of the euro. You should therefore also take hard currencies such as the Swiss franc or Scandinavian crowns into account when making your investment decisions.

Do you have questions? We will give you answers. Please feel free to contact us at any time, by phone, e-mail, digitally or, of course, in a personal meeting. We will take the time to answer all your questions in detail and in an understandable way.

In this sense, we wish all who still have your vacation ahead of you, relaxing days and good rest. Let your legs and also your soul dangle, we will take care of your facilities!

Best regards

Yours

Christian Th. Weber

Wydler Asset Management - Deutscher Fondspreis 2021_WydlerGlobalBondFund_Querformat
Disclaimer
This document has been designed and produced by Wydler Asset Management AG, however, we do not assume any liability for the topicality, correctness and completeness.

The information has been compiled and prepared with the utmost care and has been obtained from our own or publicly available sources believed to be reliable. Own representations and explanations are based on the respective assessment of the author at the time of their preparation, also with regard to the current legal and tax situation, which may change at any time without prior notice.

The contents of this document do not constitute a recommendation for action, nor do they replace individual investment advice or individual, qualified tax advice.  The information presented does not constitute a decision-making aid for economic, legal, tax or other advisory issues, nor should investment or other decisions be made solely on the basis of this information. In particular, it does not constitute a recommendation, an offer, a solicitation to buy/sell investment instruments or to engage in transactions or other legal acts.

Wydler Asset Management AG assumes no liability for any damages or losses arising directly or indirectly from the distribution or use of this document or its contents. The graphs or indications of performance illustrate past performance. Future values may be lower as well as higher.

The reproduction, adaptation, distribution and any kind of exploitation outside the limits of copyright are reserved only for the Wydler Asset Management Group, exceptions require the written consent of the company.

For detailed product-specific information and notes on the opportunities and risks of our funds, please refer to the current sales prospectuses, the investment conditions, the key investor information and the annual and quarterly reports, which you can obtain from us free of charge in German. These documents form the sole binding basis for the purchase of the funds.

Status of all information, representations and explanations: July 1, 2021, unless otherwise stated.

Your contact:
Wydler Asset Management AG, Korporationsweg 13c, 8832 Wilen b. Wollerau, Schweiz
Tel. +41 44 575 18 11, www.wydlerinvest.ch, E-Mail: info@wydlerinvest.ch, Chief Executive Officer: Frank Ramsperger

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