Tareno View April 2025
Published: 07.04.2025
Politics and capital on new paths
The first quarter of 2025 was marked by significant political changes on both sides of the Atlantic. In the US, the new administration is putting the brakes on its own economy with protectionist measures and a harsh austerity program. In Europe, by contrast, geopolitical challenges and pressure from Washington are leading to overdue investments in defense and infrastructure. As a result, capital flows are shifting away from the US and towards Europe. This shift has left a clear mark on the markets. While European equities rose by 6% in the first quarter, US equities lost -4%.
Once again, a broadly diversified portfolio has proven to be a good defense against surprises. For investors with a long-term horizon, it is important not to be led by headlines, but to keep an eye on the big picture. Sooner or later, the issue of tariffs will fade into the background, companies will adapt to the new rules in world trade, and other topics, such as the positive aspects of the Trump agenda, will come back into sharper focus.
Macroeconomic environment
Policy changes
risky US policy
It is hardly surprising that Donald Trump, barely in office, is reintroducing tariffs – but the speed and scope are. In the first two months of his second term, he quadrupled the effective US tariff rate from 2% to around 8% – and counting. This means that tariffs are already well above the level of his first term and at their highest level since the Second World War. Contrary to the widespread assumption until recently, tariffs appear to be not just a negotiating tool for the Trump administration, but the means of choice for a comprehensive reindustrialization of America.
Whatever the details of Trump’s strategy, the side effects of the chaotic trade war are already clearly visible in the sentiment indicators: uncertainty among companies, falling consumer sentiment and rising inflation expectations. Even though the fundamentals still point to solid US economic growth overall, the risks of a more pronounced economic slowdown and a resurgence in inflation have increased.
A new dynamic for Europe
At the same time, a fundamental policy change is taking place in Europe. In view of global tensions, Germany is loosening the debt brake with the aim of massively increasing both defense spending and investment in neglected infrastructure. Interest rate cuts, falling energy prices and a possible ceasefire in Ukraine could provide further positive impetus for the European economy, which has been stagnating for years.
The change in economic policy will shift the growth dynamic: while the US is losing momentum, Europe is showing signs of an upward trend.
market commentary
Capital returns to Europe
Is the turnaround here to stay?
In recent years, the US market has been a magnet for global capital, driven by unswerving US consumer spending and impressive earnings growth in the technology sector. In our last issue, we pointed out the decreasing upside and increasing downside potential of US technology stocks and recommended that investors with a high portfolio concentration should take some of their profits and diversify into other market segments.
Growing concerns about growth in the US led to massive capital refluxes to Europe and other markets. American technology stocks were particularly affected. On the other hand, European stock markets posted double-digit price gains in some cases. The shift in capital can also be seen in the currency markets – the US dollar has depreciated by 4.5% against the euro since the beginning of the year.
Is this capital shift and outperformance from Europe to the US sustainable or is it a one-time rebalancing after excessive US positioning?
Although momentum has turned in favor of Europe, we see good reasons to remain invested in US equities in both the short and long term:
Growing resistance: Political, economic and financial market resistance to radical tariff plans will form. It seems likely that extreme trade restrictions will be watered down.
Change of subject: As the new trade and fiscal policy becomes clearer, uncertainty will subside and the more market-friendly aspects of the Trump agenda, such as regulatory relief and low taxes, will come to the fore again.
Valuation: The valuation premium for US equities has narrowed significantly due to their recent underperformance compared to the rest of the world.
Structural strengths of the US and weaknesses of the EU: The US continues to have the edge in terms of innovative strength, capital availability, entrepreneurship and market size. The structural weaknesses of the EU remain and the implementation of new fiscal impulses takes time.
Overall, we consider the risk-return ratio of US equities to be relatively balanced again compared to European equities after the reduction of excessive US positions. Our recommendation is therefore not to favor the US or Europe, but to ensure a balanced mix of US and Europe (including Switzerland) in the portfolio.
Investment policy
A broad base helps withstand turbulence
A balanced allocation with a long-term focus demonstrates its advantages particularly in a volatile market environment. Instead of tactical snap decisions, we concentrate on constructing portfolios that can perform well in different scenarios. Broad diversification across regions and sectors has once again proven to be a central anchor of stability.
US equities: setback as an opportunity
We recommend that investors with little or no US exposure use the recent price declines to gradually build up a strategic position. In the technology sector, growth prospects remain intact, not least thanks to rapid advances and high investments in the field of artificial intelligence, while valuations of some large technology companies are below the average of recent years. US mid caps are also attractive, as they stand to benefit particularly from the more business-friendly part of Trump’s agenda.
Infrastructure: stability in turbulent times
We have recently invested in the Swiss Life Privado Infrastructure Fund to further diversify and stabilize our portfolios.
This fund offers access to private infrastructure companies in Western Europe and the US, with a focus on transportation, communication and energy. Infrastructure assets combine reliable and stable income with structural growth driven by digitalization, decarbonization and a high need for modernization.
Many of these characteristics also apply to our newly established Véolia equity position. The global market leader in environmental services has compelling growth opportunities, particularly in the area of water management. The valuation is favorable in a historical context – an attractive entry point.
Gold: return to strategic weight
Gold has once again proven to be an effective portfolio hedge and store of value over the long term. The numerous risks associated with inflation, geopolitics and government debt have led to a 58% increase in the last two years. While gold remains a strategic component of our portfolios, we have reduced the weighting back to the original level of 5% in order to realize the accumulated gains.
Impressum
Tareno AG, Gartenstrasse 56, CH-4052 Basel, +41 61 282 28 00
Tareno AG, Claridenstrasse 34, CH-8002 Zürich, +41 44 283 28 00
info@tareno.ch
www.tareno.ch
Disclaimer
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