Tareno View April 2025

In the latest issue of Tareno View, our CIO Simon Lutz explains how political changes in the US and Europe are resha­ping capital flows and markets and how Tareno is positio­ning itself in this context. He shows the impact of these shifts on the perfor­mance of US and European equities and once again highlights the importance of a diver­si­fied portfolio.

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.

 

Author

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

 

Respon­sible

Simon Lutz
Chief Invest­ment Officer
s.​lutz@​tareno.​ch

 

Disclaimer

The infor­ma­tion and state­ments in this publi­ca­tion have been compiled by Tareno AG to the best of its knowledge, in part from external (publicly acces­sible) sources that Tareno AG considers reliable, for infor­ma­tion purposes only. This publi­ca­tion is not the result of finan­cial analysis. Tareno AG and its employees do not accept any liabi­lity for incor­rect or incom­plete infor­ma­tion or for losses or lost profits resul­ting from the use of infor­ma­tion and the conside­ra­tion of expres­sions of opinion. The state­ments and infor­ma­tion do not consti­tute a solici­ta­tion or invita­tion, offer or recom­men­da­tion to buy or sell any invest­ment instru­ments or to engage in any other transac­tions.
Nor do they consti­tute a specific invest­ment proposal or any other advice regar­ding legal, tax or other issues. A positive return on an invest­ment in the past is no guarantee of a positive return in the future. The state­ments, infor­ma­tion and opinions expressed here are current only as of the date of prepa­ra­tion of this document and are subject to change at any time.
Dupli­ca­tion or repro­duc­tion of this publi­ca­tion, in whole or in part, is not permitted without the written consent of Tareno AG. The Swiss Bankers Associa­ti­on’s “Direc­tives on the Indepen­dence of Finan­cial Research” do not apply.

Images: Marijke Vosmeer, IStock, Pixabay, Unsplash

Charts: Tareno AG