A series of high-profile bankruptcies among U.S. regional banks in the spring sparked anxiety and concern. These difficulties stemmed from the rapid rate hikes implemented by central banks as a remedy for soaring inflation. It became clear that not all financial institutions were adequately prepared for the necessary rise in rates after years of near-zero interest. Relief arrived when the European Central Bank (ECB) initiated a new cycle of rate cuts in June, a move that was quickly mirrored by most central banks worldwide.
Despite these early-year disruptions, it was once again the American technology sector that steered markets toward calmer waters. Led by semiconductor giant Nvidia, the well-known tech favorites in the U.S. delivered stellar returns. The broader market followed these titans from the semiconductor, internet, and software industries. The pull of the U.S. markets extended to European and Asian exchanges. Even Chinese equities, long burdened by dim economic prospects, turned positive, while Japan’s markets continued their upward trajectory, driven by a weak yen and a pivot toward more shareholder-friendly corporate policies. Argentina’s equity and bond markets also stood out, benefiting from a radical economic overhaul. Meanwhile, Germany’s equity markets were primarily lifted by the international heavyweights within the index. France and Brazil, however, emerged as notable underperformers.
The bond markets told a less optimistic story. With a gain of only 1.5%, medium-term German bonds, as measured by the REXP Index, failed to keep pace with inflation, delivering yet another year of negative real returns. While short-term rates fell by 100 basis points following four ECB rate cuts, ten-year German bund yields rose by 35 basis points to end the year at 2.4%. Across the Atlantic, long-term bonds also struggled, with ten-year U.S. Treasury yields climbing 70 basis points to 4.6% by year-end. In France, a particularly tough year for bonds unfolded as political dysfunction and mounting debt drove significant yield increases.
On the currency front, the past year belonged to the U.S. dollar. The greenback strengthened against nearly every major currency, while the euro stumbled, reflecting Europe’s weak economic, military, and political standing. Europe’s largest economy has been grappling with declining industrial production and deteriorating business conditions for years. Inflation in Germany remains stubbornly high, even amid a recession. If crypto coins are considered currencies, they posted extraordinary gains, supported by public statements from the incoming U.S. president expressing enthusiasm for virtual coins. Conversely, the Mexican peso and Brazilian real saw declines.
The commodity markets were as lively as ever. Crude oil struggled due to abundant supply, while natural gas prices rose late in the year as heating demand in the Northern Hemisphere picked up. Precious metals such as gold and silver delivered impressive gains of around 30%, though industrial metals had a mixed year. Lithium, a key component in batteries, was a major loser, dropping over a third in value as the popularity of electric vehicles waned. Among agricultural commodities, cocoa stood out soaring more than 150%, with weather-related factors playing a key role, much like in the surging coffee market.
The performance of LOYS’ funds presented a mixed picture at the year’s end. While some funds struggled throughout the year, LOYS Premium Deutschland and Vates USA secured leading positions in their respective performance rankings, and the LOYS Philosophy Bruns Fund delivered its characteristic steady performance. Overall, the 50% stake in Vates GmbH acquired by LOYS AG proved to be a successful step toward broadening and deepening the product portfolio.
Sincerely yours,
Fund managers and co-investors
Dr. Christoph Bruns Ufuk Boydak
Chicago, Frankfurt a.M. on December 31, 2024