Monthly Report 08/2025

There are prices that are usually only viewed in dollars: crude oil (-4% since the beginning of the year), gold (+28%), Bitcoin (+22%) and, of course, US stock indices. It is also interesting to look at global developments in dollars. First, let’s take a look at the dollar itself.

Inflation in the US remains significantly higher than in Europe, and particularly in Switzerland. This means that the dollar is set to depreciate. To hedge against this depreciation, annual premiums of 4.4% would be required. This would have paid off over the course of this year, as the dollar has already depreciated by 10.5% against the Swiss franc. However, it now seems to have found a floor, at least temporarily, at around 0.80 Swiss francs per dollar.

Nevertheless, investors who invested their capital in dollars on the global stock markets in the first half of the year were able to achieve returns in Europe that were slightly higher than those in the Swiss Market Index (+17%) thanks to the broad Stoxx Europe 600 Index (+22%). The broad MSCI Emerging Markets index (+18%) still outperformed the Japanese Nikkei (+9%).

The US S&P 500 Index (+8%) lagged behind many major stock indices. This is rarely the case: The outperformance of European equities relative to the US is the highest in more than 50 years (1973). Back then, too, the massive decline in the value of the dollar was the main reason for the difference in returns.

This is unlikely to change again unless the dollar regains strength. However, the US government has no interest in this, and even the globally active US tech giants are indifferent: they now generate 55% of their revenues outside the US, which means that their revenues and profits in dollars automatically rise and shine. More and more Swiss companies are also reporting in dollars because they do not want to expose themselves to exchange rate fluctuations in their most important currency (Nestlé, Roche, Novartis, Zurich, UBS, ABB, etc.).

Finally, a word on currency and liquidity: Switzerland would be well advised not to allow itself to be labeled a currency manipulator by the US government as a result of heavy intervention in the foreign exchange market. The SNB lowered its key interest rate to 0.0% as of June 20, 2025. Under the current rules, certain commercial bank giro accounts already incur costs of 0.25% per year.

Due to regulatory liquidity requirements, commercial banks must maintain significantly larger liquidity buffers for certain customer segments for deposits that are available at any time. Interest rates were therefore reduced to -0.25% per annum, meaning that negative interest rates were reintroduced on some Swiss franc accounts at several Swiss banks last month.

Despite growing fiscal uncertainty, demand from foreign investors for US government bonds (Treasuries) remains surprisingly stable. This is despite numerous analyses showing that US importers and households will bear the brunt of the US tariff policy. The improvement in revenue from customs duties only minimally alleviates the structural US budget deficit. This is probably one of the reasons why demand for currency hedging has risen, because what use is the importance of Treasuries as a global “safe haven” if, as has been the case this year, double-digit currency losses have to be accepted within a few months?

The US government debt continues to be financed largely through short-term Treasury bills, a proven strategy that nevertheless increases the Fed’s monetary policy dependence on the Treasury and causes the yield curve to steepen cyclically.

The yield on 20-year Treasuries has been around 100 basis points higher than that on 2-year Treasuries for four months. This has not happened for many years. If there is a dynamic upward trend (with interest rates of just under 5% at the long end) followed by what feels like an eternity of boring back-and-forth movement, this tends to confirm the upward trend or a structural steepening of the yield curve.

The real yield in the US is currently just under 2%, its highest level since the great financial crisis of 2008. In the eurozone, however, the real interest rate is just under 1%. This gives European companies a financing advantage, and concerns about Europe are significantly lower on the bond markets.

The fundamentals in the corporate bond segment remain solid. Balance sheets are healthy; European banks, for example, have twice as much capital as they did just a few years ago. As a result, credit risk premiums on government bonds are relatively low by historical standards. However, investors are less concerned about risk premiums than absolute values.

High-quality European corporate bonds with an “A” rating currently yield 3.0%. Those with a BB rating are even yielding 4.6%. While this will not lead to any major gains in portfolios, such returns are certainly not to be sniffed at. We see an attractive risk/return profile here and continue to favor medium maturities, as there is a risk of greater volatility at the long end of the yield curve.

At a time when bond yields are expected to range between 1% and 4% per annum, these return prospects should not be distorted by currency fluctuations. What good would a 4% return be if you had to accept a 13% currency loss at the same time? That would be exactly the case if the dollar bonds were not currency-hedged in our portfolio.

Of course, one might ask why dollar and euro bonds are included in bond solutions at all. First, the Swiss franc bond market is tiny and illiquid. Numerous market-leading companies are not present in this niche market. Second, many Swiss companies have a primary need for capital in dollars and euros due to their European and/or global orientation. Third, for diversification purposes, we also consider sectors that are not represented on the Swiss capital market. This pays off.

The Credit Opportunities Fund (COF), which focuses on credit risk premiums, was only slightly below its all-time high at the end of July. The fund volume of over CHF 500 million is spread across 214 bonds, with an average duration of only 2.7 years. The interest rate risk and thus also the interest rate sensitivity are correspondingly low.

The biggest price swings in the COF’s history were linked to credit risks at the start of the COVID-19 pandemic. When “everything” came to a standstill, corporate bond prices fell. There was widespread fear of a wave of bankruptcies. However, monetary and fiscal policy measures kept the impact in check. The losses incurred in March 2020 had already been recouped by November of the same year. In contrast, the COF outperformed the Swiss Bond Index with its long-dated bonds during the global interest rate hike cycle of 2022.

The Zugerberg Income Fund (ZIF) performed solidly in its role as a conservative anchor of stability, which is primarily used in portfolio strategies with a low equity allocation. Over the past three years, the ZIF’s total return was +6.0% (+1.9% p.a.), virtually the same as a passive implementation of the Swiss Bond Index.

Due to the renewed low interest rate phase, the yield to maturity of all 286 bonds has fallen to an average of +1.3% p.a. More than 50% of these bonds have a remaining term of more than five years. The average duration is 5.9 years. These yields can therefore be enjoyed for a correspondingly long time, while bank accounts are increasingly subject to negative interest rates again.

Mortgage rates, which have been falling for over a year, are driving demand for home ownership. According to UBS, the cost of owning an average newly purchased home is currently around 20% lower than at the beginning of 2024 – before the SNB cut interest rates. “In addition, the costs of ownership are 23% lower than those of a comparable rental apartment. This could prompt wealthy tenants in particular to consider buying their own home,” the authors conclude.

Accordingly, demand for owner-occupied housing is likely to remain high, but with subdued price momentum in the coming quarters. It should also be noted that the construction price index hardly changed over the year (+0.7%). In the second quarter of 2025, the construction index for residential construction declined slightly (-0.3%). This early indicator of the construction industry in Switzerland reinforces the picture that landowners and real estate developers have benefited most from higher prices.

SARON mortgage loans carried interest rates of around 0.8% in July, significantly lower than five- or ten-year fixed-rate mortgages. However, variable money market-based mortgages have no fixed term and no fixed interest rate. Accordingly, there are also interest rate risks here, as the interest rate rises and falls with the general interest rate level at the short end of the yield curve.

In the real estate sector, the Swiss real estate fund index (+2.5% total return) gained less than the SMI (+4.9%) in the first seven months. However, we have made a selection in our portfolios that has enabled us to clearly outperform both indices so far. This applies to both Mobimo (+11%) and PSP Swiss Property (+10%).

Residential investment properties in particular are poised for further appreciation. Growth in rental income is accompanied by lower discount rates due to very low interest rates. In addition, demand for investment properties from institutional clients (insurance companies, pension funds, etc.) is rising, especially as the yield prospects on the bond markets for risk-free investments are trending toward zero. Many pension funds pay attention to the yield spread, i.e., the difference between the real estate yield and the Swiss government bond yield (currently 0.3% on 10-year bonds). If this difference is two percentage points, real estate with a net initial yield of 2.3% is also purchased.

But there are also risks lurking here. Due to weakening net immigration and increased demand for residential property, demand for rental apartments is set to decline. Higher rents have led to a reduction in living space consumption over the past two years, with larger households becoming more common. This is another reason why the restraint in housing construction is helping to stabilize the market.

The reporting season for the second quarter of the S&P 500 began on July 15. By August 1, 73% of S&P 500 companies had published their results. Analysts underestimated resilience. So far, 79% of quarterly reports have exceeded revenue forecasts and 84% have exceeded profit forecasts.

Consensus estimates had anticipated major problems due to tariff policy. However, the negative impact of 10% tariff increases is expected to affect earnings by only 3%; conversely, the 10% decline in the dollar is having a positive effect on earnings of around 4%.

We expect the S&P 500 to continue to exceed low expectations, as it has almost always done in recent quarters, which is good news for optimists. It is also interesting to note that the debt ratio (i.e., leverage) is at its lowest level since 2014. This confirms our outlook for robust real growth and increased allocation to risk assets in the coming months.

Market sentiment has been misled by Donald Trump. Short-term headlines are often poor guides. One structurally relevant theme from the first half of 2025 remains: Europe is undergoing a dramatic shift toward significant spending on defense and infrastructure, thereby improving its competitiveness. Debt sustainability remains intact, especially as growth momentum is likely to support both companies and consumers.

Another positive factor is that the world has more than seven stocks. After seven months, the “Magnificent 7” (Apple, Alphabet, Amazon, Microsoft, Nvidia, etc.) have not contributed positively to our portfolio return (in Swiss francs). From the beginning of the year to the end of July, the Magnificent 7 stocks even underperformed the broader US market. Furthermore, after many years of restraint, international equities have also performed significantly better than their US counterparts since the beginning of the year, partly due to the weakness of the dollar.

Uncertainty regarding tariff policy has recently increased again. At the same time, the latest employment figures indicate that trade policy is gradually having a significant negative impact on the economy as a whole. The fact that the US government has asked the head of the Labor Department to resign does not change this.

The worst-case scenarios involving punitive tariffs, drastic profit declines, and recession risks have become less likely, which is why we remain overweight in risk assets. If the US returns to a more predictable and growth-friendly policy, this could even act as a strong catalyst for renewed economic momentum in the coming quarters. Despite all the news, there is also considerable upside potential.

In space, the privately funded company SpaceX dominates the satellite industry. A total of 42 financing rounds are said to have taken place. Founded in 2002, the company is opening up space for both civilian and military purposes and does not publish any financial statements. Although the company is not yet listed on a stock exchange, recent prices among private market investors suggest that it is likely to be valued at around $300 to $400 billion – significantly more than the listed companies Airbus (approx. €135 billion) and Boeing (just under $170 billion).

Starlink, the satellite internet service from Elon Musk’s SpaceX, is most likely to go public. In 2024, Starlink doubled its customer base and generated revenue of $6.6 billion. Recurring revenue and steady growth make an IPO increasingly likely.

OpenAI has just raised $8.3 billion from top-tier investors including Blackstone, TPG, and Fidelity, as part of a $40B round valuing the company at $300 billion. Anthropic, another AI company that is only four years old, is growing spectacularly and is valued at around $150 billion in its latest $5 billion financing round. Both are the leading AI research companies focusing on the development of large language models with an emphasis on safety, reliability, and transparency. Open AI is linked with Microsoft. Anthropic is best known for its AI assistants in the “Claude” family. Like many startups, Anthropic is headquartered in Silicon Valley, specifically in San Francisco, California, USA.

The number of US companies going public in 2025 is already higher than in recent years. After a weak start, the success of high-profile IPOs such as Coreweave and Circle has piqued investor interest, and several high-profile IPOs are planned for the coming quarters. IPOs are also breaking records elsewhere. In Hong Kong, 43 companies have gone public this year, with another 220 set to follow. In India, 140 companies are also planning IPOs.

But the key question is how to gain fair access to this asset class, i.e., to companies while they still have moderate valuations and are not listed. We have therefore held listed private market vehicles in our portfolios for several years, and these have contributed well to diversification and performance.