Monthly Report March 2025

Dear Investors
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Market Development in the First Quarter of 2025

In the first quarter of 2025, global equity and bond markets showed significant performance differences. While in Europe, the Swiss Performance Index (SPI) rose by 8.6% and the DAX (in EUR) increased by 11.3%, the S&P 500 Index in the U.S. saw a decline of 4.3% due to a correction from mid-February to mid-March. The MSCI World Index also fell by 1.7% (both in USD). Interest rate movements were also divergent: The yield on 10-year government bonds increased by 0.37% in Germany and 0.25% in Switzerland, while long-term U.S. interest rates declined by 0.36%. Accordingly, bond investments focused on U.S. bonds recorded price gains. Supported by increased uncertainty, the price of gold has climbed 19% since the beginning of the year.

Trade Conflict with the U.S. and German Investment Program

Since Donald Trump’s inauguration, the new U.S. administration’s trade policy has dominated the agenda. In recent weeks, new tariffs ranging from 20-25% have been imposed on imports from Canada, Mexico, and China, as well as on steel, aluminum, and automobiles. This week, Trump announced additional comprehensive tariff measures "for countries worldwide," raising the weighted average tariff on U.S. imports from 2.5% at the end of 2024 to approximately 24%. As various countries respond with countermeasures, the trade conflict is escalating, leading to slower growth and higher overall prices. This environment creates uncertainty among businesses and consumers, dampening investment and consumption.

In Germany, the new government led by Friedrich Merz is partially overriding the constitutional debt brake to approve defense and infrastructure packages worth 1 trillion euros. This is expected to provide a significant economic boost for the EU in the coming years.

Fund and Mandate Performance

All Format funds and mandates, except Balanced International, recorded value growth in the first three months of the year. The year-to-date performance of the funds and mandates can be found via the link below.

The index heavyweights Nestlé, Roche, and Novartis gained between 14% and 19% in the first quarter, contributing to over 60% of SPI's performance. These three companies are included in the Swiss Equity (F) and Swiss Equity Dividend Yield (F) portfolios, but with a much lower weighting than in the SPI. As a result, our equity funds underperformed their benchmarks this quarter.

Most Swiss portfolio companies reported solid annual results and remain cautiously optimistic for the current financial year.

New Format Funds

In November 2024, we launched Format Swiss Equity Flex (F), an equity investment that allocates funds based on recent performance trends among the three existing Format Swiss equity funds. A "momentum strategy" like this is most challenged by a double trend reversal, which occurred in the first quarter: a shift from dividend stocks to Swiss equities in January, followed by a return to dividend stocks from mid-February onwards. Since its launch, Swiss Equity Flex (F) has achieved a net return in line with the benchmark portfolio, which consists of an equal allocation among the three existing Swiss equity funds, thus meeting expectations for a momentum strategy in a demanding market environment.

Additionally, we introduced Format Absolute Return (F), an alternative investment aiming for a net return of 4-5% per year with minimal asset fluctuations. This investment had a strong start, posting a 1.0% net return in January and February (March performance is not yet available).

Outlook

The focus in the coming weeks will be on the further development of the trade conflict, particularly regarding countermeasures against U.S. tariffs and whether some countries can negotiate tariff reductions with the U.S.. Business and consumer sentiment indicators, as well as inflation trends, will be closely monitored. In any case, market volatility is expected to remain elevated.

Best regards,
Matthias Hug and Markus Lackner

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