Monthly Report 12/2025

Since the beginning of the year, the Swiss franc has appreciated significantly more against the dollar (+12.6%) than against the euro (+0.8%). There is no inflationary pressure in either Switzerland or the eurozone. The factors that have driven disinflation – falling commodity prices and easing pressure on supply chains – have had a downward effect. Given the expected acceleration in economic growth, moderate wage increases and higher commodity prices could cause inflation to pick up again in 2026.

In addition, money supply growth continues to increase, which could intensify inflationary pressure over the next two years. However, there is likely to be further scope for disinflation in Europe in the coming years. The diversion of cheap Chinese exports from the US to European markets is creating a new disinflationary impulse that should allow the European Central Bank (ECB) and the Bank of England (BOE) to make further interest rate cuts by the end of 2026 – more than currently expected by the market consensus.

As an interesting addition to Europe, it is worth mentioning that Italy’s rating has been upgraded by Moody’s for the first time in 23 years. The Italian government budget is continuously generating a so-called primary surplus (before interest on debt).

President Donald Trump’s policies dominate the macroeconomic outlook for the US. Of course, the quantitative impact of each individual item on this agenda is debatable. But we know the direction. Higher tariffs, looser fiscal policy (tax cuts, especially for the richest 10% of households which account for 50% of all consumption) and stricter immigration policy are likely to increase inflationary pressure in the economy. At the same time, emigration from this traditional immigration country is reducing output potential.

At best, we can hope that the Fed, which is increasingly influenced by politics, is right in its forecast of a one-off rise in price levels due to tariffs (or “temporary” inflation). But the experience of 2021/22 shows how wrong the Fed can be in its assessments. It massively underestimated the development of the inflation rate. We tend to believe that inflation in the US is likely to remain permanently above target in the coming years.

If, in its response to its two objectives (price stability and full employment), the Fed were to place more emphasis on the labor market and less on inflation data in the future, this could lead to greater key interest rate cuts than the market currently expects. Against the backdrop of financial conditions that are already loose by historical standards, this would certainly weaken the stability of the dollar.

Looking at global monetary policy from a different angle, it can be seen that over 90% of central banks in industrialized and emerging countries have either lowered interest rates or left them unchanged in the last six months – a level last seen during the crisis of 2020. Central banks’ interest rate policies changed at a historic pace as inflation rates melted away.

Restrictive monetary policy was abandoned in many places. This makes sense and strengthens all economic entities. As a result, global financial conditions have reached their lowest level since 2021. When central banks around the world adjust interest rates, everyone is ultimately affected: mortgage costs, bank deposit rates, corporate financing, and consumer loans all react to this. But life annuities also react to lower interest rates, for example when you reach retirement age, as do rents.

The same applies to asset prices, from stocks and bonds to real estate, currencies, and precious metals. In periods of high interest rates, future cash flows (e.g., from rental income, coupon payments, or dividends) are discounted at high rates to arrive at a present value. The higher the discount rate, the lower the present value. The steep key interest rate hikes in 2022, which occurred almost simultaneously around the world, led to significantly lower valuations at that time.

This trend is currently being reversed. In some places, it is considered complete, while in others there is still considerable potential for a surge in valuations. Where discount rates are being lowered due to the respective central bank policy, the present value of future cash flows increases.

However, in terms of the economy, the changes and revaluations are occurring with a certain delay. For example, because inflation remains relatively high in the Anglo-Saxon region (US, UK), interest rates also remain relatively high. Working capital is correspondingly expensive and the profitability hurdle for investments is higher. If monetary policy in these countries becomes significantly more expansionary over the coming years and key interest rates are lowered, significantly higher valuations (e.g. bonds with a high duration and real estate) would be expected.

Given the scale of the measures taken by central banks, it remains a constant challenge to allocate capital to where the expected future steps, taking currency risks into account, are likely to yield the highest risk-adjusted returns.

With the slightly more risk-tolerant Credit Opportunities Fund (COF), we have been deliberately operating partly in the “investment grade” area and partly in the “sub-investment grade” area for more than a decade. The current ratio is 35% to 65%, which characterizes a typical crossover portfolio where you don’t have to decide in advance which side to choose. In contrast, virtually all corporate bonds in the Zugerberg Income Fund (ZIF) are in the investment grade range.

What is interesting now is the phase that has been ongoing for two years, in which corporate bonds have shown virtually the same volatility as government bonds, but typically yield a noticeable and sometimes even significantly higher return. We remain convinced that, in the coming years, it will continue to be worthwhile, in risk-adjusted terms, to focus primarily on corporate bonds rather than government bonds in the bond segment.

However, there may be phases in which government bonds, especially in highly indebted nations, actually yield higher returns than solid, defensive bond issuers. For example, French government bonds maturing in 2032 yield slightly more than those of the French luxury goods group LVMH with the same maturity (3.0%). And in Italy, the government bond maturing in 2032 yields a comparable return to that of the Italian insurance group Generali.

We currently favor European companies with strong capital resources and are already hesitant to subscribe to bonds issued by industrial cyclicals. However, it can also happen that the company you are keeping an eye on taps other sources of financing. Companies do not always cover their capital requirements on the capital market.

For example, the Bern-based energy group BKW increased its unsecured syndicated credit line to CHF 1.5 billion with a consortium of banks. The credit facility runs until 2030 and has a one-year extension option. This secures BKW a liquidity reserve for the implementation of its “Solutions 2030” strategy, which places more emphasis on profitability than growth. BKW is in the midst of a CHF 4 billion investment phase between 2025 and 2030, which is likely to prove profitable as a result of the increasing demand for electricity from data centers. Operating activities are expected to generate more than CHF 5 billion in cash flow during the same period. Profit and dividend estimates therefore anticipate considerable growth in the coming years.

From an investor’s perspective, it is interesting to see how Swiss real estate indices have performed in recent years. The REALX Swiss real estate stock index, which is calculated by the Swiss Stock Exchange, has gained an average of just 1.5% per year since January 1, 2020. However, this was not accompanied by low volatility. In fact, the index lost around 25% during the period of high inflation and sharp rises in key interest rates from March 2022 to September 2022. It took almost three years to recover from this decline (“drawdown”).

Typical Swiss real estate stocks are now trading at an average price/earnings ratio of 30, meaning that the earnings yield on an investment of CHF 100 is 3.3% and the dividend yield is 2.4%. The price/book ratio is 1.28, meaning that shares with a book value of CHF 1,573 are trading at a premium of 28% to their book value. They cost CHF 2,006. This is a hefty premium, but not excessive, as the book value tends to be associated with a certain amount of “hidden reserves” and tends to be below market value. Over the past 52 weeks, the annual low was CHF 1,670 and the high was CHF 2,006. This volatility reduces the attractiveness of an index with moderate earnings prospects.

Similar to real estate stocks, the Swiss real estate fund index SWIIT has already anticipated much of the future. The estimated premiums for real estate funds are 37% – significantly higher than for real estate stocks. Both are less attractive than direct real estate investments. However, absurd new commitments can also be seen here. When purchasing apartment buildings, institutional investors accept initial yields of up to 1.8%.

Nevertheless, SWIIT is considered relatively attractive. It is a typical benchmark for Swiss pension funds. These often invest almost blindly because the relative attractiveness is derived from the alternative of investing in safe Swiss government bonds.

However, the short remaining maturities are all in negative interest rate territory. Only the seven-year bond is just in positive territory with a yield of +0.03% (!). After that, however, the yield curve remains flat. Even 40- and 50-year bonds yield no more than 0.2% per annum. Those who chase positive Swiss franc yields with high ratings (e.g., AAA) are exposed to exceptionally high interest rate risks and thus bond price volatility risks, and will only be compensated with a minimal positive return during this period.

Typically, our equity portfolios are more diversified across sectors, with Nestlé representing the food sector and Novartis and Roche representing healthcare, for example. Holcim, Amrize, and Sika reflect the solid growth of the building materials industry, while Siemens and Schneider Electric embody industrial automation and electrification, etc.

Some sectors are temporarily very popular with investors, while others (e.g., private market investment managers such as Partners Group) are currently expressing a certain degree of skepticism about market expectations for the coming years. We consider these assessments to be far too pessimistic.

The broad market consensus among financial analysts can sometimes change rapidly and suddenly cause a massive shift in share prices. In the case of Alphabet, many analysts (contrary to our assessment) predicted an AI-related slump in Google search queries. Instead, the exact opposite has happened to date. The share price fell from USD 189 to USD 145 (-23%) in the first few months of this year, but we remained invested. Quarter after quarter, the fears were refuted. Ultimately, the price rose to USD 320 by the end of November, 69% higher than at the beginning of the year.

In general, the best currency-adjusted return opportunities in the current year were not in the US (S&P 500 up 3%), but on this side of the Atlantic. The significant performance differences between European countries to date also demonstrate the importance of disciplined selection. While the French CAC 40 index rose by only 10%, the figure was 20% in Germany (with stocks such as Siemens) and 41% in Spain (e.g., Iberdrola). It is interesting to note, however, that after the reporting season for the third quarter of 2025, numerous fair value estimates were revised upward.

Fair value estimates have recently been raised not only for Nvidia, Apple, Amazon, and Alphabet, but also for the Swiss pharmaceutical companies Novartis and Roche. From this perspective, certain communications service providers (e.g., Deutsche Telekom, which is attracting investors with a record dividend and benefiting from strong US business) and infrastructure providers remain clearly undervalued.

Siemens also continues to have potential under CEO Roland Busch. He is placing the strategic focus on accelerated, more profitable growth in digital businesses, networked and software-defined hardware, and AI applications for industry. With the acquisitions of Altair and Dotmatics, Siemens is increasingly becoming a technology company with annual growth of 6% to 9%, and investors are benefiting from this through a progressive dividend policy.

The European Central Bank (ECB) Financial Stability Report summarizes that uncertainty in the capital markets is likely to persist “…with the potential for renewed spikes.” The report states that the financial markets – especially the stock markets – are vulnerable to sharp corrections due to persistently high valuations and increasing concentration. The ECB was not referring to the valuation of European equities. These have a low weighting in global comparisons and are moderately valued. Rather, the ECB recently warned of the risk of a stock market correction that could be triggered by highly valued US tech stocks and the hype surrounding artificial intelligence (AI).

You can protect yourself against this by actively structuring your portfolio with discipline. In good times, this may mean that you are not among those with the highest returns, but in bad times, you will be able to sleep better. Investing in the global stock index currently only achieves apparent diversification. It will only become real again when IT dominance is broken and the portfolio more closely reflects the reality of the resilient global economy. That is why we are turning disproportionately to sectors such as food, pharmaceuticals, insurance, infrastructure operators, and energy suppliers rather than the MSCI World. We also place value on Swiss equities in the core allocation, which massively reduces the currency volatility of our portfolios. The risk/return profile can thus be significantly improved by analyzing historical data.

Finally, quality is also an important factor. This means that the vast majority of the portfolio is focused on companies that are highly profitable, have robust balance sheets, embody pricing power with their market shares, and have convincing management. Those who focus on such fundamental factors will continue to have relatively cheaper stocks in their portfolios, which may be boring in the short term due to their stable earnings, but are lucrative in the long term.

Speculative capital chases other stocks – those where momentum currently predicts a phenomenal upswing. During the coronavirus pandemic, Zoom Communications shares were one such example. Their valuation rose to USD 175 billion in fall 2020, even though annual revenue was only USD 350 million. Now, five years later, Zoom is more established than ever in the video conferencing business. Annual revenue is around USD 5.5 billion. The valuation fell from a speculative high to a fundamentally justified level of USD 26 billion. Similar developments can be expected for AI-related companies such as Palantir, which currently dominate the MSCI World.