European equities have had a spectacular start to the year, while the seven IT giants, the "Magnificent 7" or "Mag7," are showing signs of weakness. In our Asset Allocation Update for February, we continue to maintain a neutral equity allocation and favour alternative investments.
Text: Nicola Grass
The start of the year couldn't have been better for European equities, with indices like the German and Swiss stock indices already up more than 7% after just one month. Our thesis of moderate returns in 2025 is currently on shaky ground.
However, our thesis of improved market breadth seems to be holding up so far, and the seven IT giants, known as the "Magnificent 7" or "Mag7," are among the underperformers for once. As we expected, the extremely high investments in artificial intelligence are increasingly being criticised and questioned.
At these valuation levels and with such concentrated positioning, these companies are vulnerable to corrections. However, as the economy and corporate earnings remain solid and bond yields have recovered somewhat from dangerously high levels, the rest of the market has been able to gain value. In our Asset Allocation Update, we are therefore sticking to our neutral equity allocation and continue to prefer the broader market over the "Mag7."
The most significant adjustments are being made in alternative investments, which we continue to prefer over traditional asset classes. However, we are taking profits in Swiss real estate and reverting to a neutral position. After a rise of almost 20% in the last six months, the premiums are now quite sporty again at over 30%. In commodities, we are moving to an underweight position but remain overweight in gold and cat bonds.
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