Switzerland Investment Ideas

I wanted to follow up on yesterday's posting about Switzerland with some different ways to access the Swiss Stock Market. Yesterday I concluded that there was no evidence that broadly owning the Swiss market provided any kind of safe haven diversification against US holdings. The SMI and the S+P 500 have had a close correlation over time and if there is a safe haven play out there it should have a low correlation to the US.

That does not mean that Switzerland should be avoided, necessarily, either. There are three ways that I have found to easily access the Swiss market. The obvious way would be to buy ADRs or ADSs traded in the states. According to ADR.com there are 19 stocks to choose from but only eleven of them are listed on the NYSE or NASDAQ. It will be very difficult to get information on those other eight without a Bloomberg Terminal.

There is also an iShares for Switzerland (EWL). It has all the components of the index that you can see by clicking on the Swiss Screen Shot below. It has a beta of .72 but no real dividend yield. According to Wendy at Ameritrade it pays only annually and this past January it paid just over $0.05 per share for a yield of about 1/3 of 1%. A more attractive alternative is the Swiss Helvetia Fund (SWZ). It yields 1.65%, inline with the SMI. It also trades at a 15% discount to its NAV. Both funds own the same top four holdings, Novartis, Nestle, Roche, and UBS (albeit in different percentages). While no one can say whether it will make up that discount or not, the discount along with the yield make it more attractive than the iShares.

For disclosure purposes I, as well as my clients, own one Swiss company, Novartis. The reason for that one is it makes up 30% of the index so we capture a lot of the index with just the one holding. Also, I am bearish on the US big pharma stocks so Novartis provides good exposure for the group. It has almost no Beta which fits in with my ongoing theme to underweight volatility for my clients. Lastly the fundamentals are better than most other pharma stocks with market caps greater than $50 billion.

As an investment theme I have to say I am disappointed with how these postings turned out. I thought a Swiss theme would be more interesting than it turned out to be. The high correlation between Switzerland and the US even held up during the fall of 2001, one of the worst periods from a fear standpoint ever.


The one thing that may make Switzerland become more interesting in the future is if the dollar loses its status as the global benchmark currency for some reason, which though unlikely is not impossible. Some sort of event that creates an unprecedented demand for Swiss Francs could decouple the two markets. I'll let you decide whether that is something to put your money behind.

I'll conclude this tomorrow with a way to use the Swiss Franc as an analytical tool.