FFM Fund Newsletter - Jun 2025

June 2025

Dear Friends, Dear Investors,

After the recent market turmoil, we have at last had quieter times and markets went up again during the month of May.

Having said that, while markets, which always tend to rebound first before any clear economic indicator does, uncertainty remains high. That is because, although tariffs on China, for example, have been reduced, they are still elevated, and we have seen no clear indication of a rebound in activity in the Port of Long Beach/Los Angeles. 30% (or whatever the final rate may be) may seem a godsend compared to 145%, but it is still incredibly high and a potential death knell for quite a few US importers.

The more interesting point is that, until May, tariffs had only concerned traded goods. That has now changed. First, Donald Trump decided to impose 100% tariffs on foreign films (how these will be tariffed remains a mystery) but, much more importantly, an obscure provision in the current US budged going through Congress as we write could have quite an impact on foreign investors in the US.

The One Big Beautiful Bill Act, or OBBBA, as it is formally known (we have a suspicion that, given what’s in this bill, the 3 Bs in its acronym will one day be the bond rating for US Treasuries) has, deeply inside its many pages, one section that looks particularly worrying to us: Section 899 – Retaliatory Tax Provision.

This section grants the U.S. government authority to impose a surtax of up to 20% on U.S.-source income (such as dividends, interest, royalties, capital gains) earned by foreign persons or companies. It targets investors or firms from countries that enact what the U.S. deems "unfair" taxes on American businesses—especially digital services taxes and global minimum taxes under OECD “Pillar Two.” The surtax is progressive, potentially reaching 20%, and aims to offset what the U.S. considers economically harmful foreign tax policies.

This is not yet capital control, but it would mean (the Senate has not yet voted on it) that, let’s say you are a Swiss resident who invests in US financial instruments, you could be taxed on these just because the US decides Switzerland has a harmful foreign tax policy.

In other words, these are tariffs on financial instruments and the language is so broad and non-specific that any US administration could target any foreign investors it wants.

This ties in with what we wrote last month: the rule of law is clearly becoming more malleable in the US, which means it has become less safe to invest there. This does not mean one should exit this market, just that, in all likelihood, such a market seems highly priced at 24x this year’s earnings.

In this context of renewed regulatory tensions and growing legal uncertainty in the United States, we remain committed to our investment philosophy: taking a long-term approach by investing in high-quality businesses that we understand—companies with strong growth, high margins, low debt, and a clear ability to reinvest capital wisely. Should current valuations and the tightening U.S. regulatory environment persist, we will remain vigilant and selective. When performance is comparable, we would favor European companies that offer the same fundamental qualities as their U.S. counterparts. A situation to watch closely.

Best regards,

Your CaridaB Group Team