The assessment of the currently turbulent situation on the equity markets. Three quick questions with three intriguing answers.

Keynote Spin-Off Fund – assessment of the market situation

1. What impact do the current dislocations in the capital markets have on your fund?

The holdings of the Keynote Spin-Off Fund are also affected by the dislocations in the financial markets. Although the strategy has historically exhibited a lower correlation to the equity markets, spin-offs are unable to escape the sell-off either when forced liquidations occur. In the past, however, the spin-off strategy's recovery phases following price declines have also been stronger.

2. Are there any adjustments within your fund strategy as a result of the current situation?

Hardly any adjustments have been made to the portfolio. SharkNinja came under pressure due to tariff fears regarding China and is currently in the process of sourcing all products manufactured for the US from outside China (e.g. in Vietnam or Cambodia) by the end of 2025. However, the company remains exposed to potential tariffs. For risk considerations, we have therefore reduced its weighting, but we remain convinced of the company's positive longer-term prospects. In return, we used the price decline of Accelleron for purchases. The manufacturer of turbochargers for large engines in ships, locomotives and power plants generates three-quarters of its revenues from recurring income (maintenance and spare parts), which ensures a high degree of visibility and reduces the cyclicality of the business. The Swiss company Accelleron generates only 10% of its revenues in the US, meaning that any tariff conflicts should have no noticeable impact on the company's critical products and services.

Many investors are not focusing on the long-term perspective but are instead trying to make quick money in the current environment – what will work next week, next month or next quarter? We, by contrast, focus on where the best returns can be achieved over the coming three to five years. The high-quality spin-off situations held in the Keynote portfolio shine with strong business models, pricing power, trustworthy management and attractive valuations. At the same time, we avoid companies with characteristics that prevent longer-term outperformance: below-average business models that are subject to secular risks, extreme valuations, poor management and inadequate capital allocation. Nothing has changed with regard to the quality and prospects of our portfolio holdings – except that the valuations are much more attractive. This should result in higher future returns.

3. What developments do you expect in the coming months?

While «soft data» signal maximum uncertainty, the facts show that little will change for the foreseeable future in the underlying drivers of the US economy that have dominated since 2021. 6% of gross domestic product – 1.74 trillion dollars – still flows into the economy from the ongoing programmes of the national industrial policy of the Biden legacy. The House of Representatives' budget has barely changed and will entail a net increase in federal spending of 10 billion dollars for 2025. At the same time, the historic shift in the eurozone's attitude towards fiscal policy, particularly in traditionally conservative Germany, signals better growth conditions on the old continent.

The markets are currently assuming that President Trump will succeed with his executive orders. Yet the tariff war he is waging in the name of a national emergency and the sweeping cuts to the state administration through the DOGE organisation (Department of Government Efficiency) constitute an abuse of power and are most probably unconstitutional. The Supreme Court's «Major Questions» doctrine requires that executive measures which represent a question of «vast economic and political significance» must be «clearly» authorised by Congress. While Article II of the US Constitution resembles a reality TV show, the entirety of Articles I and III, which describe the competences of Congress and the judiciary, are clear and intact. The manner of Trump's approach is likely to lead to him ultimately having to renegotiate all laws and being reduced to a «lame duck» for the remainder of his presidency. Ironically, «Bidenomics» – i.e. the fiscal policy of the previous administration – will endure, because this spending was carried out in cooperation with Congress. The recent dive on the stock exchanges is therefore likely to be, once again, a «head fake» in the equity market cycle and to lay the foundation once more for the equity markets to climb upwards along the «wall of worry».