Silvercrest
Swiss Equity

PERFORMANCE COMMENT

Silvercrest–Swiss Equity’s institutional share class finished March with a return of -2.77%, which represents an underperformance of 73 bps compared to its benchmark, the Swiss Performance Index (SPI TR).

As a reminder, the Fund reports performance net of withholding tax on dividends vs gross of withholding tax for the benchmark (35% withholding tax). The headwind equals to some 85-105 bps annually (assuming a dividend yield of 2.5-3.0%), most of which comes in March-May.

Not owning Logitech or Sonova, alongside the overweight in Sunrise Communications, contributed most to relative performance in the month. The UCITS-imposed underweights in Nestlé and Novartis had the biggest negative impact on relative performance, followed by the overweight in Comet. In the SPI, defensive sectors Real Estate and Consumer Staples led the index higher, while IT and Consumer Discretionary underperformed.

MARKET REVIEW

The Swiss market, as measured by the Swiss Performance Index (SPI), lost 2.04% in March. The Swiss small & mid cap index (SPIEX) lost 2.63%. This compares with a 4.45% loss for the MSCI World Index (NDDUWI), driven by MSCI USA (NDDUUS), which lost 5.89% vs MSCI Europe’s (MXEU) 4.36% loss. In the first quarter of 2025, the SPI gained 8.58%, ahead of MSCI Europe’s 5.32% gain and losses for MSCI USA and MSCI World.

Concerns about tariffs, geopolitical uncertainty and technology valuations weighed on equity markets in March. The US Conference Board consumer confidence index fell sharply to 92.9 in March from 100.1 in February, which marked the lowest level since February 2021. In the US, both the S&P global manufacturing PMI and the ISM manufacturing PMI fell. The former fell from 52.7 to 49.8 and the latter from 50.3 to 49.0. These are considered leading economic indicators. Core personal consumption expenditure (PCE) inflation for February, reported in March, rose 0.4% m-o-m, pushing the annual rate to 2.8%, above expectations. This increased worries about stagflation. The VIX index, which measures volatility, increased from 19.6% to 22.3% during the month.

Meanwhile, Europe took a turn for the better in March. Germany approved a EUR 500 bn infrastructure fund and increased defence spending through a historic vote in the Bundestag. The measure involved amending the constitution to relax debt rules, which many market participants considered a game-changer. At the same time, the European Union approved a “ReArm Europe” plan, with investment of up to EUR 800 bn. The eurozone manufacturing PMI rose to 48.6 in March, up from 47.6 in February, marking its highest level in 26 months.

In terms of style factors, defensives outperformed cyclicals in March globally and in the US, Europe and Switzerland. Value outperformed growth in all regions. High-dividend and low-volatility strategies also fared well. In the first quarter of 2025, defensives beat cyclicals in all regions except for Europe, and value outperformed growth universally.

PORTFOLIO ACTIVITY

In March, we sold our holdings in Julius Baer, Swissquote and Schindler, while adding dormakaba to the portfolio.

STOCK OF THE MONTH

dormakaba’s shares finished March slightly up in a weaker market overall as it is seen as one of the beneficiaries of Germany’s infrastructure fund. After attending the CMD last fall, we met the CEO at a conference in early January and again during the roadshow in Zurich in March. We left the meetings with increased confidence in the execution of mid-single-digit sales growth plus EBIT margin expansion from 15.2% in H1 FY25 to 16-18% in FY26, having walked through a tangible roadmap on how to get there. dormakaba finished Q1 trading on 18.7x NTM P/E compared to the 10-yr average of 19.4x, i.e. a slight discount.

QUARTERLY OUTLOOK

Uncertainty increased throughout the first quarter of 2025. At the end of last year, investors’ animal spirits rose on hopes of pro-business policies under the new Trump administration, including deregulation and an extension of tax cuts. Instead, President Trump chose to initially focus on tariffs when he took office. Investors grew concerned about heightened inflation and weakening growth. This coincided with a challenge to the US technology sector’s leadership from Chinese artificial intelligence players like Alibaba and DeepSeek, among others, while BYD overtook Tesla to become the world’s best-selling electric car.

Meanwhile, Europe’s prospects began looking up thanks to Germany’s approval of infrastructure spending, the release of the debt brake, and the EU’s rearmament plan. This has driven a reversal of fund flows, with Europe enjoying inflows after many years of outflows. Europe is, of course, not immune to trade tariffs and the US administration has promised to announce additional ones in early April. Another factor of importance for equity markets is the outlook for Ukraine, where investors are hoping for a ceasefire leading to reconstruction.

Sincerely

Silvercrest–Swiss Equity investment team