The second quarter also brought pleasing returns. The primary drivers of returns were gold and Swiss equities. While the latter caught up slightly with global equities, led by US companies, in Q2, global equities delivered significantly higher returns than Swiss equities over the year so far. The weak Swiss franc played a major role in this.

Swiss investors who hedged their foreign currency investments against price losses were caught particularly off guard. Findependent does not perform such foreign currency hedging.

It is therefore no coincidence that inquiries for currency-hedged equity ETFs from our clients have declined in this market environment. Our opinion on these instruments is clear: anyone investing for the long term should stay away from them.

Review

Almost all asset classes contributed to the positive performance (in CHF) in the second quarter:

• Gold: +4.8%

• Swiss equities: +3.1%

• Global equities: +2.1%

• CHF corporate bonds: +0.8%

• Swiss government bonds (3-7 years): +0.4%

• Swiss real estate funds: -1.0%

As a result, every consistently invested findependent portfolio achieved a positive return. This is very pleasing.

The sentiment on the financial markets remained consistently good in the second quarter. Some stock indices even marked further all-time highs. This comes as little surprise, as the global economy proved robust, the first major central banks delivered on their "promises" of lower key interest rates, and there were no political events with serious consequences for the real economy. This mixture is usually beneficial for financial investments.

Assessment

(Almost) anything is possible on the financial markets at any time. This sentence cannot be repeated often enough. Forecasts should therefore be taken with a grain of salt. This particularly applies to currency exchange rate predictions, as they are moved in the short term by countless factors — from monetary policy decisions (e.g., changes in key interest rates) to economic statistics (e.g., GDP growth or inflation data) to political events (e.g., change of government). Sometimes mere rumors are also responsible for significant currency fluctuations, and quite often there are no obvious explanations at all.

Over a long-term period, the situation looks a bit different. In general, currencies of countries with low inflation rates tend to appreciate relative to those with higher rates. However, this is not a law of nature but rather a historical observation, as the currency development of the Japanese yen over the last 12 years impressively showed. Despite continuously low inflation, the currency lost over half of its value against the Swiss franc.

What does this mean for investors?

For most people, it is very difficult to impossible to achieve sustainable returns with an active currency allocation. Sure, anyone who hedged their investments in Japanese equities was able to achieve a high return in recent years. However, anyone who did this for US equities in 2024 missed out on a USD appreciation of over 7% and additionally paid over 2% in hedging costs since the beginning of the year.

It's best to just leave it be. Consequently, we do not recommend equity ETFs with currency hedging and do not offer them.

Outlook

We do not make forecasts. Our recipe is and remains simple. Invest for the long term, broadly diversified, and cost-effectively.

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