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 Accelleron, Centiel, Implenia and Kühne + Nagel while liquidating the holdings in Galenica, Siegfried and Tecan Group.
Performance Comment
LO Funds – Swiss Equity’s institutional share class finished June with a return of +3.73%, which represents an underperformance of 74 bps compared to its benchmark, the Swiss Performance Index (SPI 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). The headwind equals to some 85-105 bps annually (assuming a dividend yield of 2.5-3.0%), most of which comes in March-May.
Our overweights in Comet, VAT Group and Inficon were the best contributors to relative performance in the month. At the same time, overweights in Interroll and Kardex detracted from relative performance, as did the underweight in Givaudan. In the SPI, consumer discretionary and financials led the continued rebound in June while IT and utilities finished the month in the red.
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 Equity investment team
share.