Swiss Equities
December 2024
- Quality firms can benefit significantly from a more dynamic economy
- Swiss firms generally have strong balance sheets and can cope with adverse conditions
- The next phase of economic acceleration will be driven by lower interest rates and receding inflation
1. What do you think could be the biggest challenge or opportunity for clients in 2025?
In 2024, the more defensive Swiss blue chips once again outperformed small and mid caps. Both segments suffered, though, due to the strong Swiss franc that weighed on profits. Swiss firms, being highly international, tend to produce in the regions in which they sell, limiting the margin impact from a strong Swiss franc. However, translating profits from abroad into Swiss francs negatively affects profits when the currency is strong. Given that the Swiss franc is rather expensive in real terms, this headwind should ease going forward. Swiss small and mid caps are more cyclical in nature than blue chips and felt the effect of weak manufacturing conditions throughout 2024. An acceleration in 2025 has the potential to unleash a new profit cycle, which could go on for some time and drive growth in the Swiss small and mid-cap segment.
2. What do you see as the one major investment opportunity for you in 2025 and how can you capitalise on it?
In our experience, quality firms can benefit significantly from a more dynamic economy. During downturns, they can win market share, and outspend weaker competitors in terms of R&D and market development, which then translates into accelerated growth and dynamic profit development once conditions brighten up. We have not reacted to short-term adverse conditions, ensuring that our strategies are well prepared for the next phase of economic acceleration driven by lower interest rates and receding inflation.
3. What is the biggest risk to your asset class next year and how can you mitigate that risk, or even turn it into an advantage?
Clearly, the turnaround in manufacturing has been delayed. Measured by international purchasing managers’ indices, manufacturing has been weak for more than two years now, which is a long time by historical standards. There is certainly a risk that this weakness could persist. However, Swiss firms generally have strong balance sheets and can cope with adverse conditions without causing any permanent damage to shareholders. They have started to cut costs but remain prepared for an upturn. In a new profit cycle, their strong international market positions should come into play again. At a time when trade barriers tend to increase, their local production structures and Swiss neutrality should work to their advantage.
Thomas Funk manages Swiss Small & Mid Cap and Swiss Sustainable Companies strategies at GAM Investments.
Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.