Why Switzerland?

In order to document the rational of our Swiss-focused strategy and the compelling risk / reward characteristic of the Swiss equity markets, ASIM presents its conclusions:

Swiss Equities Outperform:  The Swiss market has been arguably the best performing developed-world market over the past 20, 10, 5 and 2 years (comparison to US, UK, French, German, Japanese and other markets) in CHF, USD, EUR and GBP.

Currency Impact Positive But Not Necessary:  While this performance has been magnified by the strength of the Swiss Franc, local-currency comparison (stripping out currency impact) shows the Swiss market in the lead over these periods of time.


Swiss Market Characteristics:  The market capitalization of Swiss stocks is approximately CHF 800 billion providing sufficient depth for investors.  Sector diversification tends to be weighted towards defensive areas with health care, consumer goods, financial and industrial sectors dominating the market with limited exposure to telecom/technology, energy, or utilities.  Valuations are in line with other developed world markets.  In turbulent times like the recent crisis, volatility tends to be significantly lower than other markets.  Finally, Swiss companies have benefited significantly from sales growth in emerging markets and other international markets.

Strong Swiss Franc Fundamentals:  Over the past three decades, PPP and REER currency models persistently and erroneously pointed to an overvaluation and an expected devaluations of the CHF.  However, Switzerland enjoys a structural current account surplus.  According to World Bank and other models described in my paper, this has correctly predicted and caused to an appreciation in the Swiss Franc value over the past forty years.   This CA surplus persists with no structural sign towards a reversal.

Stable Environment:  Switzerland has offered a stable and conducive environment for companies to thrive.  Public debt is manageable at 41% of GDP (US heading to 100%), there has been a budget surplus each year for over a decade, long term unemployment rates have hovered at about 3% (currently 4.1%), interest rates have been consistently low and overall corporate taxation levels are lower than most developed economies.

Swiss Investor Conclusion:  Swiss investors should concentrate their equity exposure in the Swiss market. The argument for global diversification has delivered very little over the past twenty years. There is an argument for some allocation to the emerging markets as they have delivered on the high risk (volatility) / high return metric. However, there is limited historical argument for some of the other adventurism that has occurred in the past.

International Investor Conclusion:  International investors should consider an allocation to the Swiss equity markets. The combination of historical outperformance, a significant pool of high quality companies, a strong and resilient base currency and an excellent environment for corporations to operate bodes well for continued strong performance.