The US Federal Reserve determined the end of the year
December ended with predominantly negative signs on the global stock markets, which meant that the much-hoped for year-end rally failed to materialize and a turbulent end to the 2024 stock market year was recorded. Looking back, however, it can be said that 2024 has proven to be a successful year for globally oriented investors overall. Despite geopolitical and economic challenges – including the ongoing conflicts in Ukraine and the Middle East, debt debates and political upheavals in Europe – the resilience of many companies, often invoked in these lines, proved to be a decisive factor. In particular, the ability to adapt flexibly to new circumstances or even to actively shape new trends proved to be the key to success. A prominent example is the field of artificial intelligence (AI), which is a growth driver for US technology companies and fuels fantasies about significant productivity gains. These could significantly improve both margins and corporate profits in the long term.
Interest rate policy and market reactions: Fed remarks cause a bad mood
In December, both the European Central Bank (ECB) and the US Federal Reserve lowered their key interest rates by 0.25 percentage points each to support economic growth (Europe) and further stabilize inflation (USA). Although these moves were anticipated by the markets, the hawkish rhetoric of Fed Chairman Jerome Powell (“hawkish”) drew attention to future interest rate policy. Surprisingly, the Fed’s inflation forecasts for 2025 and 2026 were raised, while the expected key interest rate cuts for 2025 were halved to two steps. These developments led to significant movements in capital markets, with the S&P 500 posting its biggest one-day loss since July 2024, and the VIX volatility index rising on a daily basis as much as it did last during the pandemic in March 2020. At the same time, the US dollar appreciated against almost all major currencies and reached a 2-year high against the euro. While a weaker euro could provide a positive stimulus for European exports, the strength of the dollar poses risks for companies indebted in US dollars, especially in emerging markets. The US bond market recorded the largest rise in yields on the day of a Fed meeting since June 2013. At the time, then-Federal Reserve Chairman Bernanke philosophized about gradually tapering bond purchases in order to proclaim the end of “cheap money” after the global financial crisis.
US technology supports markets, Europe under political pressure
Thanks to the outperformance of leading US technology companies such as Alphabet and Broadcom, the US markets were able to par some of their December losses. However, macroeconomic conditions continue to vary widely between regions:
USA: A stable labour market, political stimulus and robust consumer demand support the economy. However, the valuation of U.S. equities remains historically high, with an average price-to-earnings (P/E) ratio of the S&P 500 of 24 (versus a long-term average of 20). Risk premiums vis-à-vis US government bonds are now at a historically low level.
Europe: Here, lowered growth forecasts (the potential growth expected for Germany for the next few years is now only 0.4% p.a.!) reflect the structural and geopolitical challenges. Germany is suffering from political stalemate, while France is struggling with a debt problem. While European equities appear more attractively valued at a P/E ratio of 14, they are weighed down by high energy costs and the transformation of the auto industry. It is interesting to note that many European small caps are now trading below book value, which could fuel takeover speculation.
Asia: China is showing initial signs of stabilization, but remains burdened by structural problems such as the real estate crisis and youth unemployment. Other Asian markets, on the other hand, are benefiting from favorable valuations and technological innovation.
Looking ahead: Seizing opportunities through targeted diversification
For 2025, we are using a diversified portfolio strategy with a clear focus on real values to balance the discrepancies between the highly valued US markets and cheaper European and Asian markets, as well as conflicting signals. Our investment approach prioritizes quality companies with market-leading positions and future-proof business models rather than index levels. This resilience should be an advantage, especially in a potentially erratic political environment, marked by the inauguration of the new US president and his philosophy of “dealmaking”.
Conclusion: A constructive environment with temporary volatility
Despite numerous political and economic uncertainties, the environment continues to offer attractive opportunities for equity investors. Vigilant central banks, a moderate economic recovery, productivity gains through AI and a president who reads his success more strongly from stock prices than all previous incumbents create a solid basis. We therefore see temporary price declines as opportunities to add to quality stocks in a targeted manner and to benefit from the growth of leading companies over the long term. Our goal remains to create sustainable value through careful analysis and strategic allocation – regardless of short-term market movements.
In the portfolio of the Hansen & Heinrich Universal Fund (current equity allocation of 92%), we have kept our level of investment stable even in the volatile December. Despite the weaker market environment, we were able to close the month with a positive performance. This was driven in particular by our position in Broadcom, whose stock price has risen by more than 40% in the last four weeks. We were able to use this to strategically reduce our position and realize profits. In addition, we used the big expiration date in December for targeted adjustments: For example, we reduced positions in JPMorgan Chase, ServiceNow, Visa and Walmart in order to further optimize our portfolio. At the same time, we took advantage of the opportunities created by the price declines caused by the Fed’s hawkish rhetoric. In this context, we have systematically expanded our exposures to defensive quality companies such as AstraZeneca, McDonald’s and Procter & Gamble. These shifts underscore our approach of acting flexibly and opportunistically in a challenging market environment to create value for our investors. The focus remains on future-proof companies with robust business models and a strong market position – a strategy that has proven its worth, especially in phases of increased volatility. McDonald’s experienced a challenging year in 2024 with strong fluctuations. Initially, the company was considered the loser of the trend around “weight loss injections”, before it was able to catch up significantly into the autumn. However, an E. coli outbreak in the U.S. led to a temporary halt in sales of certain products in 20% of U.S. stores. The share price then fell from its all-time highs, but has recently stabilized and is currently consolidating at a high level. McDonald’s remains attractive in the long term. The group plans to open 75 new stores a year in Germany alone, as well as investments in digital ordering options and e-charging stations. A dividend yield of 2.3% provides stability and the uncertainties caused by claims for damages appear to be priced in in the short term. We expect the consolidation of the share price to be resolved upwards in the medium term. McDonald’s remains a robust investment option with long-term growth potential and high resilience.
In the H&H Endowment Fund (current equity quota 37%), our primary goal remains to generate stable and sustainable income that we can distribute to our investors on a regular basis. We have been pursuing this strategy with great reliability for years. On December 6, 2024, we were again able to make a distribution of EUR 3.00 per unit, which corresponds to an attractive distribution yield of just under 3%. Our investors benefit from the continuity of this approach, which provides a reliable basis, especially in challenging times. The selection of the companies allocated to the fund continues to be based on a transparent and rigorous process that takes into account clearly defined sustainability criteria. Our investment focus goes beyond short-term economic goals and focuses on long-term value-creating investments. Sustainable and intergenerational action forms the basis for maintaining or improving the framework conditions for a liveable coexistence on our planet. We prefer to invest in companies that create a clear benefit for people and nature. This includes, for example, innovations in the field of water treatment, technologies for waste reduction or measures to conserve resources. Medical advances that contribute to life extension are also among our priorities. A good example is the US company Alphabet, which not only generates solid earnings through its profitable core business, but also drives innovation in forward-looking areas such as autonomous driving. The Waymo project, a pioneer in the field of autonomous mobility, could make a decisive contribution to reconciling the growth of urban spaces with the need for individual mobility. This not only relieves the burden on the environment, but also improves the quality of life for humans and animals. While the discussion about autonomous driving has recently gained renewed attention due to Elon Musk, we see Alphabet and Waymo as a leading player in this area in the long term. Alphabet therefore remains an essential building block in our portfolio. In the bond sector, too, we rely on targeted and value-oriented decisions. In December, we successfully participated in a new issue of Veolia. This investment allows us to realize a higher interest coupon than maturing bonds, further strengthening the basis of our distributable income. This focus on high-quality issuers with attractive conditions underlines our philosophy: After the distribution is before the distribution. Our investors appreciate this sustainable and reliable income strategy, which will be continued in 2025.
In the last month of the year, we were again able to record significant inflows of funds in WoWiVermögen (current equity quota 14%), which we did not invest immediately. This was due to limited activities on new issues and dwindling liquidity in the equity market at the end of the year, coupled with a very one-sided positive positioning of global fund managers as well as high valuations in US equities and European corporate bonds. We noted the rise in yields and a breather in global equities in December and are looking forward to the new issuance activity for January, including higher yields on our reinvestments. On the equity side, we are also looking forward to an eventful January, which should provide enough volatility (e.g. at Donald Trump’s inauguration) to create opportunities for direct investments or structures. As mentioned above, new issuance activity for the month of December was limited. Nevertheless, we were able to further expand the corporate bond segment via the secondary market. Positions such as 2.974% Veolia 24/29; 3.875% MTU Aero Engines 24/31, 1.125% HoWoGe 21/33 were strengthened. In addition, we took advantage of price weaknesses in McDonald’s and American equities (JP Morgan Global Research Enhanced Index Equity ETF) to buy.
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