Since June 26, the euro has gained 3.4% against the dollar. The euro has remained fairly stable against the franc. The franc also gained against the dollar. The exchange rate fell from CHF 0.90 to 0.85 (-5.3%) in the corresponding period. This is a subtle indication that it is less a case of euro strength than dollar weakness.

The momentum of dollar weakness could intensify with falling interest rates and declining yields on dollar bonds. Some believe that the dollar cannot weaken any further because interest rate cuts to 3.0% to 3.25% are already priced in. However, the fact is that the dollar is trading at just under 0.82 on the futures market at the end of August 2025 and at less than 0.80 at the end of August 2026.

However, if, contrary to expectations, weak economic data from the US arrives, this could cause the dollar to fall a little further and the euro to appreciate above 1.14. Dollar investments should therefore be treated with a little more caution than euro investments. In Europe, equities with high dividends are competing with bonds, whose yields have already started their downward trend with expectations of interest rate cuts. The less restrictive interest rate and monetary policy of the European Central Bank (ECB) ultimately also ensures fairly stable expectations and explains to some extent the lower currency and share price fluctuations compared to the USA.

The time has certainly come for interest rate cuts in the USA. The exact procedure remains unclear, as does the extent in the coming weeks and months. There is more consensus about the next 12 to 15 months. There are likely to be a total of eight interest rate cuts totaling 200 basis points. However, these firm expectations of interest rate developments have not yet been incorporated into analysts’ discounting considerations. As a result, profit forecasts for 2025/26 are likely to increase significantly as a result of the de facto interest rate cuts, particularly in the non-technology-related corporate sector, and the valuations of real estate and infrastructure investments are likely to be higher.

The most important analysts are fairly unanimous in this medium-term assessment. However, the robustness of the US economy should not be underestimated. The stronger the economic momentum, the less urgent it is for the Federal Reserve (Fed) to act. In the recent past in particular, analysts have misjudged the macroeconomic data in the US and thus raised expectations of the Fed that would not have been appropriate in view of real growth (e.g. annualized +3.0% in the second quarter).

In the last five years, government bonds have not generated any positive returns, but corporate bonds have – especially in the popular crossover segment, the solid segment in which substantial credit risk premiums are also incurred.

Large credit markets have not recently been as nervous as large equity markets. Credit spreads widened somewhat and, as experience shows, take longer to narrow again. The iTraxx Crossover 5-Year Total Return Index stood at 248.5 at the end of July, fell briefly to 243.8 (-1.9%) and ended the month of August at 250.7, which is significantly higher than at the beginning of the year (+4.9% in euros). It is therefore clear that good money can be made with corporate bonds this year, even after the cost of currency hedging.

The economy remains robust enough to avoid a recession. Markets scaled back expectations for a 50 basis point rate cut by the Fed on September 18, with pricing now consistent with a 25% probability of a 50 basis point cut and an almost 100% probability of a 25 basis point cut. Pricing for the last meetings of the year (November 7 and December 18) is largely unchanged, with markets still expecting a 25 basis point cut each time, meaning we will see rate cuts of probably 75 basis points by the end of the year.

As the economy continues to perform well, we see upside potential for the current market prices of corporate bonds. Failure by the Fed to cut rates would hurt the labor market, which has had to cope with an increase in unemployment from 3.7% to 4.3% (+0.6%) since its low point. Maintaining a high key interest rate in such a phase, while inflation is falling, would de facto tighten monetary policy further. This makes no sense whatsoever, especially as the latest economic data gives more factual confidence that inflation is under control. It is now time to make an adjustment in order to fulfill the monetary policy mandate (full employment and price stability).

The current environment makes investing in the crossover sector particularly interesting. This refers to solid companies with a rating roughly in the middle of the AAA to CCC scale, namely BBB to BB. “Defaults or bankruptcies are extremely rare in this segment. Some companies that have suffered particularly badly during the pandemic (e.g. cruise companies such as Carnival Corporation and airline caterers such as Gategroup) are already rated with a “positive outlook”. A rating review could lead to a better rating in the next 12 months.

In recent years, we have not always been proud of our bond solutions. A particular challenge was the Russian attack on Ukraine and later the sharpest central bank rate hikes in the last 50 years. In the meantime, the macroeconomic data picture has changed. Falling inflation rates are allowing key interest rates to fall. This process is more advanced in Switzerland than abroad (dollar, euro, pound). There is still considerable potential for key interest rate cuts in the next 12 to 18 months, from which bond prices will benefit.

The first part of the recovery took place in 2023. The ZIF rose by 6.0% last year and the COF by 4.5%. This year, the tide turned in favor of credit risks. It was not yet possible to earn too much with interest rate risks. The world bond index (hedged in Swiss francs) has so far delivered a total return of +0.3% in eight months; the ZIF, which is also based worldwide, outperformed this index with +0.9%.

Credit risks are looking even better. Because the global economy is growing robustly, there are hardly any bankruptcies. With disciplined selection, the COF has therefore been able to outperform its benchmark indices by around two percentage points over the course of the year to date with less fluctuation. At 2.58, COF’s volatility over the last 12 months was around 43% lower than that of its peer group at 4.58.

Many portfolios also include a low-cost bond fund from the Winterthur Investment Foundation. It goes by the abbreviation DID and can be located on Bloomberg under “AWIDID7”. This fund supports future-oriented decarbonization projects with debt capital. The rating is between the top rating of ZIF and the crossover rating of COF. The yield in the current year is also somewhere in between (+3.9%) and makes an interesting diversification contribution to the overall portfolio.

There were several purchases and sales in all bond categories last month. We would like to emphasize that the credit risks in ZIF were scaled back. In COF, some opportunities were taken to reinvest the funds released from bond redemptions. However, a significant portion of more than 10% of the fund is currently waiting for better opportunities. The issuance calendar in August was rather thin. Experience shows that it should pick up significantly from September to November, particularly in view of the falling interest rate outlook.

Profit growth in the technology sector is still in double figures. It is also necessary in order to be able to make the upcoming investments. In the current year, the world’s four largest providers of data center and cloud solutions alone will invest around 200 billion dollars in infrastructure, 31% more than in the previous year. These investments are driven by strategic positioning. It is better to gain an advantage as a “first mover” in AI at a high price than to become a mediocre follower.

However, it is not only Alphabet, Amazon, Microsoft and Apple that are active in this field, but also financial investors such as BlackRock. In general, a hyperactive ecosystem of companies has developed within a very short space of time, combining complex technology components, building materials and chemicals, operational services including cybersecurity and energy supply, as well as manufacturers of cooling supplies.

AI opportunities are developing along the value chain. The infrastructure is needed first. This requires an “intelligence level”. These are the adaptive language models that are currently awaiting their applications in various forms and are being improved at a rapid pace. These ultimately enable applications such as Microsoft’s Co-Pilot, etc.

The controversial algorithm in Tiktok is apparently to be fed by Microsoft’s participation in OpenAI. Microsoft receives a reported 20 million dollars a month for this. The transparency guidelines in the US business reporting indicate that well-known customers buy the OpenAI models via Microsoft. These include AT&T, Coca-Cola, Fidelity, Volvo and Walmart. Other enterprise customers of OpenAI such as Zoom, Klarna and Salesforce are buying them directly from the AI startup.

Ultimately, a range of applications will emerge and contribute to the broad diffusion of AI solutions. In the medium term, there will be improvements in all sectors, and there will certainly be winners and losers. To be among the winners, a company must invest early to generate a data or competitive advantage. It has always been the case that the ability to learn and adapt quickly has produced the most successful innovations.

Infrastructure-linked assets have proven resilient in recent years, withstanding macroeconomic and interest rate pressures. According to preliminary data from Cambridge, infrastructure investments have returned around 7% p.a. in Swiss francs over the past decade. Due to the high barriers to entry, this figure could even rise slightly in the coming years.

There are various approaches to calculating the equity risk premium. What all approaches have in common is that they aim to calculate the return an investor receives for taking risks over and above the risk-free return. Normally, the risk-free return is represented by that of government bonds. For a Swiss share, the yield on Swiss government bonds is used; for an American share, the yield on US Treasury bonds is used.

The expected market return on the risky investment is used to calculate the premium. In general, this is compensation for the financial risk assumed by the investor in order to bear the uncertainty associated with an investment. The level of the risk premium is influenced by several factors, including the economic situation and outlook, fluctuations on the capital markets and investor sentiment.

If you take a selective approach, you will find some market-leading companies on the Swiss equity market that are likely to generate solid market returns in the coming years thanks to promising growth. This is where our focus lies, but not all sectors can be covered well with domestic securities.

Our portfolios are therefore rounded off with European and American equities and diversified in terms of sectors. However, we only take on the corresponding equity risk if there is a high probability that the expected market return will exceed the increased risk-free rate (2.3% in euros and 3.9% in dollars).

This results in a diverse portfolio that is able to benefit from growth opportunities in all major economic regions of the world. However, the positive risk premium does not accrue as regularly as the interest on a bond, but we use a few examples with more company-specific interpretations to show why we believe that investors are well compensated for taking the risks involved.

The global leader in product testing, the Geneva-based SGS Group (total return of +35% since the beginning of the year), is maneuvering on a promising growth path in the stable hands of a core shareholder with cost discipline. The flavor and fragrance group Givaudan (+27%), in which Microsoft founder Bill Gates is the most important anchor shareholder with just under 14%, is also convincing as a global market leader with its customer-oriented and shareholder-friendly management.

Accelleron (+73%), the turbocharged spin-off of the ABB Group, has already exceeded all key figures several times this year, including its own expectations. At SAP (+44%), Europe’s largest IT group, there is also a sense that an investment is worthwhile because the expected long-term market return clearly exceeds the risk-free rate.

For years, European wholesale electricity trading was characterized by moderate price levels of between €20 and €60 per megawatt hour. The feverish price trend rose to almost 700 euros (e.g. August 25, 2022) in the wake of tensions with Russia. In 2023, a sustained decline in wholesale prices set in, which should ease the burden on private households in the current and coming energy periods.

When electricity tariffs fall, electricity bills are typically lower – compared to the previous year. The good news of lower electricity tariffs in the future is currently reaching many Swiss households and typically results in savings of between one and several hundred francs a year. For the Central Swiss provider CKW, electricity prices in 2025 will fall to roughly the same level as in the year before the pandemic and the energy crisis. The price increases of the past two or three years will disappear again due to the 30% lower electricity tariffs.

At the same time, the night-time low tariff is disappearing in many places. Historically, the demand for electricity was highest at midday (which was reflected in a high tariff) and lowest at night (low tariff). Nowadays, photovoltaic systems ensure that surplus electricity is available over midday on sunny days.

This is why some electricity suppliers are switching to uniform tariffs, but are considering seasonal patterns. Sooner or later, the summer tariff (with a lot of solar energy and European wind power) could be cheaper than the winter tariff (with imported French nuclear power).

Conventional electricity meters can be replaced by “smart” devices. This would allow power peaks to be priced more dynamically and electricity consumption to be better distributed. Those who distribute their consumption of dishwashers, washing machines and tumble dryers more evenly will reduce the load on the grid and consequently pay less than those who use all major electricity consumers at the same time.

However, the conversion of electricity generation to climate-friendly systems through the expansion of renewable energy is only making slow progress. The same circles that are in favor of funding often reject specific, sensible projects – with justifications such as nature and townscape protection. This is all the more annoying because the construction and operation of photovoltaic and wind energy systems has fallen significantly. However, an energy transition still generates a number of hidden costs. The transformation in households and in the private sector is fraught with conflict because it also involves high one-off investments and ongoing costs, as well as the expansion of energy transport and storage capacities and much more.