Market Review
The Swiss market, as measured by the Swiss Performance Index (SPI), gained 4.48% in June with the Swiss small & mid cap index (SPI Extra) up 3.34%. This compares with a 0.72% loss for the MSCI World Index (NDDUWI), a 1.06% loss for the S&P 500 (SPX) and a 2.92% gain for the MSCI Europe Index (MXEU).
On June 18th, the US and Iran signed a memorandum of understanding that lead to the reopening of the Strait of Hormuz and a sharp decline in oil prices. Brent and WTI crude fell roughly 20% during the month. Lower energy prices reduced fears of a sustained inflation shock and supported risk sentiment outside the energy sector. Falling oil prices benefited European economies disproportionately because of their greater energy sensitivity.
At the same time, AI enthusiasm met profit taking. June saw a pullback in several mega-cap technology equities as investors questioned the near-term return on massive AI capital expenditures. The share price performance of semiconductor companies, AI infrastructure providers, memory manufacturers and data center beneficiaries remained strong though.
In terms of style factors, defensives generally outperformed cyclicals, with the exception of the MSCI Europe Index. Small caps outperformed large caps in the US but not in Europe and Switzerland. Value outperformed growth in the US but not in Europe and Switzerland. Last but not least, quality outperformed the broader market.
Portfolio Activity
In June, we added positions in Centiel and DSM-Firmenich, while exiting our holdings in Partners Group and Siegfried.
Performance Comment
LO Funds–Swiss Small & Mid Caps’ institutional share class finished June with a return of +3.53%, which represents an outperformance of 18 bps relative to its benchmark, the SPI Extra 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).
Our overweights in Comet, Implenia and Inficon were the top contributors in June. The overweights in Interroll, Kardex and Huber + Suhner detracted from it. In the SPI Extra, materials and healthcare led the continued rebound, while defensive sectors like utilities and communication services were used as sources of funds.
Quarterly Outlook
We are encouraged by the signing of a memorandum of understanding between the US and Iran, which lead to the reopening of the Strait of Hormuz and falling oil prices. We believe this shifts the focus from macro economics and geopolitics to earnings delivery and fundamentals. The second quarter earnings season is generally expected to be a strong one.
Sincerely
LO Funds–Swiss Small & Mid Caps investment team
teilen.