LO Funds (CH)
Swiss Leaders

MARKET COMMENTARY

The Swiss market, as measured by the Swiss Performance Index (SPI), lost 0.25% in August while the Swiss small & mid-cap index (SPI Extra) gained 0.33%. This compares with a 2.58% gain for the MSCI World Index (NDDUWI), a 2.72% gain for the S&P 500 (SPX) and a +0.47% gain for the MSCI Europe Index (MXEU).

Better-than-expected corporate earnings drove equity markets higher in August. Nvidia, as a market bellwether, not only exceeded expectations but also guided to 70% sales growth next year versus consensus expectations of 44%. The company explained this growth could have been as high as 100% had it not been for capacity constraints. In addition, market participants focused on interest rates. Treasury Secretary Bessent announced plans to at least double the repurchases of long-dated Treasury securities, which some interpreted as concern about elevated borrowing costs, reigniting the fiscal-sustainability debate. Fed Chair Warsh’s speech at Jackson Hole reasserted commitment to the 2% inflation target and was read as hawkish, increasing the odds of a September hike from 35% to over 60%. Elsewhere, the US-Iran standoff persisted.

In terms of style factors, cyclicals outperformed defensives globally and in Switzerland. Value and growth performed in line globally but momentum lagged.

PORTFOLIO ACTIVITY

In August, we exited a holding in Kühne & Nagel and added Givaudan and Geberit to the portfolio.

PERFORMANCE

LO Funds (CH) – Swiss Leaders’ institutional share class ended August with a return of -0.25%, which is in line with its benchmark, the Swiss Performance Index (SPI TR).

Our overweights in Interroll, Kardex and Sika were the best contributors to relative performance during the month. At the same time, overweights in Huber + Suhner, Kühne + Nagel and Straumann detracted from relative performance. In the SPI, IT and communication services performed best while utilities and real estate finished last.

OUTLOOK

We remain constructive in our view. Corporate earnings have been better than expected. Valuations look reasonable, with the US, Switzerland and Europe all trading within 4-6% of their 10-year averages. Manufacturing PMIs are in expansion territory and the Ifo Business Climate Index (IFO) rose more than expected in August.

That said, we recognise several uncertainties, such as the US-Iran war and its implications for the oil price and inflation, whether the Fed will raise interest rates, and upcoming US midterm elections. These could create volatility in the near term.