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Input 22.07.2020

“Study the past if you would define the future.”

Confucius

Good afternoon

Looking back to the beginning of 2020, it started relatively smooth in the environment of low interest rates, tensions between China and the US, but ongoing global demand for food, energy,  consumer products etc,  but got heavily  interrupted by COVID lock downs around the globe. Home office, remote learning, online shopping, and 2m distancing created new patterns.

Financial markets collapsed in February ,  various margin calls needed to be executed. We learned that strategies with solid Swiss Private Banks included leverage, which became disastrous in the sell-off. They were days we oil futures prices traded negative and It became impossible to read the volatile markets, but definitely wrong to realize losses. Based on our cooperation with the ETH spin-off we monitor and assed markets daily, which is creating an additional level of confidence in combination with many years experience on market corrections

The graph below illustrates in a impressive way, what longterm oriented investing means, and that a crisis also can create opportunities

The orientation of the mandate is a clear focus on liquid equity-based investments, where we believe in long-term recovery and success. Dividends are creating additional income, which is not possible to generate in bonds markets and/or cash any longer.

By establishing the cooperation of the ETH spinoff Openmetrics we created a way to measure the conditions of the markets,

As mentioned before we notice and expect a radical shift of consumer behaviour; this forms part of our outlook 2020+:

Among other, German industrial production in May turned out worse than expected. Although the Federal Ministry of Economics is confident that the low point in the industry has been overcome, capacities are still clearly underutilized. The OECD is forecasting record unemployment averaging 9.4% in the industrialized countries by the end of the year. This would be the highest figure since the global economic crisis in the 1930s. The European economy is likely to suffer more than expected from the consequences of the corona crisis. The European Commission is forecasting an economic slump of -8.7% for the currency area in the current year.

Corporate debt continues to rise in the wake of the global pandemic. Many companies are currently taking various measures to reduce operating costs, for example by reducing staff. Only the massive money market policy of the central banks is currently able to prevent a major stock market correction or rising interest rates.

Sectors such as IT (e.g. MICROSOFT, INTEL) will face future demand on cloud solutions and remote communication, e-commerce (e.g. ZALANDO, AMAZON) will trigger challenges within logistics (e.g. DEUTSCHE POST, UPS) , automotive producers (e.g. BMW,PEUGEOT) can expect a boom for smaller cars, local manufacturing of various goods (machinery, fashion, etc.) will set a new trend, sustainable tourism instead of “discount travelling” will most likely prevail, and last but least – solid balance sheets are key for all companies. Our view is constructive.

Liquidity injected by the Governements, being immediate loans as almost everyone could apply for here in Switzerland, or actions by Central Banks will  keep interest rates at low levels for a long while to come, despite inflation for goods as food, energy etc. Asset class of Equity is expected to benefit of this scenario, where a risk/return for bonds and cash remains in disfavour.

We avoid private equity and other non liquid asset classes, even though some of them claim to have protective elements. Risks with yearly valuations are not assessable for us. Instead, we continue to believe in liquid equity-based investing with annualized returns rather than non-transparent IRR, although we might face almost hourly changes on prices and economic outlooks in various reports sent/shared in media and other channels.

We look forward to being challenged with your views

Best

Bjoern