INVESTING WITH A SAFE-HAVEN FLAVOUR
In a dynamic global landscape, Swiss assets stand out thanks to their high quality and Switzerland’s political stability. Investing in CHF assets means sailing with the ultimate safe-haven currency, and when it comes to Swiss companies, many are innovation champions. In short, Swiss assets are a key ingredient of robust, long-term portfolios.
Switzerland benefits from a stable political environment and strong economic policies. It has healthy public finances and large foreign exchange reserves. These qualities, together with the Swiss National Bank’s prudent monetary policy, have contributed to the CHF being one of the world’s strongest currencies.
CHF BONDS – A SAFE HAVEN IN A PORTFOLIO
The strength of the CHF has helped to contain Swiss inflation by making imported goods and services cheaper. Partly for this reason, the Swiss National Bank has not felt the need to raise interest rates as much as other central banks. This has made CHF bond yields lower than in the eurozone, but the lower yields have been more than compensated for by the strength of the CHF. However, the CHF may have rallied a little too far too fast, and some weakening may lie ahead, especially given its interest rate disadvantage. That said, the CHF remains on a decade-long appreciation trajectory, is a safe haven for turbulent times, and now comes with some yield.
SWISS EQUITIES – SAFE HAVEN AT A DISCOUNT
The Swiss equity market lagged in 2023, largely due to its very low exposure to the information technology and communications sectors, the year’s clear winners. However, when we compare the equal-weighted S&P 500, in which both sectors play less of a role than in the benchmark S&P 500, to the the large-cap Swiss Market Index (SMI), we find that the latter has outperformed in CHF terms.
Valuations of Swiss large-cap stocks fell massively in 2023, which seems excessive considering their above-average quality. And given its defensive nature, the SMI is well-positioned in a context of geopolitical uncertainty and slowing growth.
SWISS EQUITIE S ARE AVAILABLE AT A VALUATION DISCOUNT
Going forward, the primary value driver for listed Swiss real estate funds is expected to be rising cash flows rather than revaluation gains on property portfolios. Residential funds should benefit from further increases in rents – both of existing and market rents – and strong demand amid very low vacancy rates. Commercial funds should benefit from rising cash flows due to the indexation of rents to the Swiss consumer price index. That said, given that past interest rate rises may not yet be fully reflected in property valuations for some funds, we favour more established funds, primarily in the residential segment, with stable funding and more predictable income distribution.
Furthermore, Swiss equities include many quality cyclical companies that due to their high foreign-sales exposure should benefit disproportionally from a global economic recovery spurred by expected global rate cuts in the course of 2024. The sustained strength of the CHF, for its part, forces Swiss companies to keep costs under control and innovate in order to remain globally competitive. Yet, in the next few months, any weakening of the CHF in 2024 would provide an additional boost for export-dependent companies.
ALCON INC
Alcon, separated from Novartis in April 2019, is the largest eye care device company in the world. It is engaged in the research, development, manufacture, distribution, and sale of eye care products through its two businesses: surgical and vision care. The surgical division involves cataract surgery, vitreoretinal surgery, refractive laser surgery, and glaucoma surgery while its vision care segment includes daily disposable, reusable and colour enhancing contact lenses, and an entire portfolio of ocular health products.
KEY INFORMATION AS AT 25.01.2024, 03:43 CET
ISIN | CH0432492467 |
Country | Switzerland |
Sector | Healthcare |
Subsector | Equipment & Services |
Currency | CHF |
Price as at 23.01.2024 | 66.54 |
FY1 P/E | 28.15 |
Dividend yield | 0.30% |
ESG category | Sustainable Investment |
KEY RISKS
• 40% of Alcon’s business is exposed to cyclical demand that might fade in the face of tougher economic conditions.
• Competitive pressures in the surgical sector would pose a risk to Alcon’s market share.
• The failure to execute on cost control and margin improvement would impact the company’s bottom line
PRICE AS AT 23.01.2024, 01:00 CET
HOLCIM AG
Holcim Group (Holcim), a newly created entity from a merger of Lafarge and Holcim, is a leading global supplier of cement and aggregates (crushed stone, sand and gravel), as well as more specialized building materials. Its business strategy is based on continuous growth in both developed economies and emerging, high-growth markets.
ISIN | CH0012214059 |
Country | Switzerland |
Sector | Industrials |
Subsector | Construction & Materials |
Currency | CHF |
Price as at 23.01.2024 | 63.26 |
FY1 P/E | 12.24 |
Dividend yield | 5.07% |
ESG category | Responsible Investment |
KEY RISKS
• The company is highly dependent on the construction industry, which is cyclical in nature.
• There is low product differentiation and a dependence on pricing discipline by other market participants in order to keep margins.
• Rising raw material and energy costs could weigh on results.
PRICE AS AT 23.01.2024, 01:00 CET
NESTLE SA
Nestlé is the world’s largest food company. The group’s product categories include powdered and liquid beverages, milk products and ice cream, nutrition and health science, prepared dishes and cooking aids, confectionery, water and pet care products. Its most important brands include Nescafé, Nespresso, Maggi, KitKat, Friskies and San Pellegrino.
ISIN | CH0038863350 |
Country | Switzerland |
Sector | Consumer Defensive |
Subsector | Food & Beverages |
Currency | CHF |
Price as at 23.01.2024 | 95.90 |
FY1 P/E | 19.85 |
Dividend yield | 2.76% |
ESG category | Traditional Investment |
KEY RISKS
• Nestlé faces competition from private labels, which have become an increasingly important tool for food retailers to retain customers.
• The emergence of niche brands that can more easily distribute their products through e-commerce is a threat to Nestlé.
• Deflationary commodity costs (coffee, cocoa, and other raw materials) could result in an adverse pricing environment.
PRICE AS AT 23.01.2024, 01:00 CET
SANDOZ GROUP AG
Sandoz Group Ltd is among the top 3 generics makers globally by market capitalization and by revenues. About 10% of its sales derive from generic copies of large complex molecules, so called biosimilars. As at end 2022, the company had a portfolio of 24 biosimilar and over 400 generic products.
ISIN | CH1243598427 |
Country | Switzerland |
Sector | Healthcare |
Subsector | Pharmaceuticals |
Currency | CHF |
Price as at 23.01.2024 | 29.10 |
FY1 P/E | 13.53 |
ESG category | Traditional Investment |
KEY RISKS
• Due to a lack of own biologics facilities, Sandoz currently relies on third-party manufacturers for most of its biosimilar production, which is a potential weakness.
• Competition from large pharma players with excess biologics capacity is not to be underestimated.
• ‘At risk’ product launches, awaiting and defending against any litigation the patentee may bring.
