At its meetings, the Investment Committee decided on the following changes to the asset allocation for medium-risk balanced Swiss Franc portfolios, not subject to client’s restrictions (mandates in different reference currencies at times display different nominal weightings and weighting changes).
The money market allocation increased slightly as the equity allocation was reduced (see section Equities USA). It now corresponds to its long-term strategic allocation, or to put it in other words, we are neutral weight.
The second three-month period was not a showpiece quarter for bondholders either. On the one hand, there is hardly any current income to be had in hard currencies like the Swiss Franc, Yen or Euro. On the other, the rising interest rate differential (e.g. between the Swiss Franc and US Dollar) increased hedging costs, acting as a drag on results. Last but not least, the yields of lower credit rated corporate bonds and lesser-established markets increased. All in all, this put pressure on prices of fixed interest securities, including various bond funds, resulting in a negative performance. An active change has not been made to the allocation. Unchanged, we continue to be underweight..
Other funds employed by us developed as follows:
The weighting of Swiss stocks did not experience any changes during the second quarter, however, the composition of the stocks selected according to value criteria did. During the course of the regular annual rebalancing, the stocks of Adecco, Bobst, Feintool International and Orior were added to the “Swiss Stock Portfolio” (SSP). Also Holding, Cembra Money Bank, Sonova Holding, Vifor Pharma and Zurich Insurance were further new introductions to the fundamentally attractive stocks. As previously, Autoneum, Baloise, Bell, Coltene, Metall Zug, Nestlé, Novartis, Roche, Siegfried, Swiss Life, as well as Vetropack, feature in this selection comprising of 20 stocks.
In contrast, Georg Fischer, Gurit, Kudelski, Mobilzone, Swisscom, as well as Zehnder Group, had to give up their position. The stocks of Swiss Re, Tecan and UBS suffered the same fate. Obviously, the same rebalancing was applied to the certificate “Strategy Certificates linked to the SIM Swiss Stock Portfolio Basket” (Valor: 36524524, ISIN: CH0365245247)
The total return year-to-date (incl. dividends) of the SSP amounts to 3.9%. With that, it is identical to its benchmark SPI (Total Return). Since 2010, the SSP’s annual performance amounts to 11.4%, a result that clearly beats the benchmark performance of 7.4%. Since 2010, this strategy’s cumulative total return amounts to about 151%. The SSP figures bear transaction costs and withholding taxes, whereas the benchmark index does not bear any costs.
The directly invested “European Stock Portfolio” (ESP) equally underwent its annual rebalancing. New entrants among the most attractively valued European stocks are; Repsol (oil), the industrials, Babcock International, Aurubis and Meggitt, as well as the British utility, SSE. New entrants in the consumer sector are; Tate & Lyle, in financials, Legal & General, Aegon, ABN Amro and Sybank were added. The German pharmaceutical stocks, Merck and Covestro, round off the list of new additions. Holding on to their place amongst the 25 most attractively valued stocks on Europe were; Saras (refining), UPM Kymene (paper), Dürr (engineering), EDP Energias de Portugal (utility), Amsterdam Commodities (commodity trading), as well as the consumer stocks of Barratt Developments and Renault. Also staying on are Eutelsat Communications, Capgemini, BNP Paribas and Nordea. Rounding off the line-up are Fresenius Medical Care and the chemicals producer, Arkema.
Neste, Eiffage, Centamin, Jeronimo Martins, Freenet, Dialog Semiconductors, Swiss Re, L.E. Lundbergforetagen, IG Group, Novo Nordisk and Evonic Industries were retired from the portfolio.
Since the start of the year, this selection has achieved a return +0.5%, and in doing so beating its benchmark, the Stoxx 600 Index, by 80 basis points (both values calculated as total return, i.e. including dividends). In a comparison with a pure value-benchmark more closely corresponding to our investment style, the ESP’s outperformance even amounts to 1.3 percentage points.
Measured on the price/earnings ratio using the latest 12 months profit figures, most equity markets have become more attractive:
Since 1993, this equity selection’s average annual performance amounts to 9%, compared to the 7% achieved by the above-mentioned broad benchmark. The transaction costs, as well as taxes withheld, are deducted in ESP figures, whereas the index is calculated without bearing any costs. The cumulative performance of the ESP since 1993 amounts to 890%. We have not made any changes to the positions during the first quarter (exception: a small reduction for Euro based mandates) and carry an unchanged neutral weighting.
In the USA, we reduced the equity position to a neutral weight towards the end of the quarter. Higher tariffs and the lower exports associated with that, rising interest rates, rising wages, as well as the uptrend in cost of energy (oil prices increased by a good 65% during the past twelve months) will, slowly but surely, erode American companies’ high profit margins. American equities carry a high fundamental valuation, so that any possible earnings disappointments are unlikely to go unpunished. The Performa US Equity Fund employed by us developed very pleasantly during the course of the year. It significantly outperformed the market, so the partial sale realised handsome gains.
Equities Asia (excluding Japan)
Emerging market equities have been ruffled during the course of the year to date. As the US Dollar rose and US interest rates increased, money left the emerging markets heading towards established financial centres. With markedly higher oil prices also supporting that trend, we continue to be neutral weight..
We did not make any changes to the position in the Land of the Rising Sun. By means of price changes, Japanese equities’ weighting fell slightly. There is a small but negligible overweight position remaining.
We have not made any changes to alternative investments. Both positions have hardly moved and, as far as performance year-to-date is concerned, are ahead of equities and bonds.
Precious Metals Asset Allocation
Gold found little enthusiasm with investors during the second quarter, in spite of various central banks verbally expressing their confidence in the precious metal. During the past three months, its price followed the often-observed pattern, where gold falls as the US Dollar rises. We continue to hold the position in unchanged volume as an alternative currency with a high security factor.
Summary of our current Asset Allocation
Price/Book and Dividend Yield of major equity markets: