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Analyse/db x-trackers SMI®

Nestlé, Novartis, Roche: Diese drei Unternehmen machen über die Hälfte des Gewichts des SMI-Index aus. Entsprechend ist der Schweizer Leitindex von defensiven Branchen geprägt.

Hortense Bioy, CFA 21.03.2014

Rolle im Portfolio

The db x-trackers SMI UCITS ETF provides exposure to Swiss large cap stocks, some of which are also the biggest in Europe. As such, this fund can be used as a core holding, but investors should be aware of the peculiarities of the underlying index. The SMI is fairly top heavy, with the top three constituents accounting for about 60% of the index’s value. Nestle, the world’s biggest food company, is the largest stock represented in the index with a 21-25% weighting, followed by drug makers Novartis and Roche. This inevitably results in high sector concentration, with healthcare accounting for more than a third of the index's value, while consumer goods and financials combined represent another 45-50%.           

This fund can also be implemented as a tactical tool to overweight Swiss large cap equities within a diversified portfolio under the belief this market is undervalued given its near-to-medium-term prospects.

For non-Swiss investors, this fund can also serve as a diversifier within a broad pan-European portfolio by providing exposure to the Swiss franc, one of the world’s most stable and strongest currencies. However non-Swiss investors should be mindful that while a strengthening franc will enhance the return of this fund as denominated in their home currencies, a weakening franc will weigh on its performance as measured in their home currency.

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Fundamentale Analyse

Buoyant worldwide demand for Swiss goods supported Switzerland’s economy after the financial crisis, until the appreciation of the Swiss franc--driven by its safe haven status--became a problem, threatening to thwart growth and sink the country into sustained deflation. The persistent strength of the franc prompted the Swiss National Bank (SNB) to set the minimum exchange rate to the euro at 1.20 in September 2011. This shift, effectively a “peg” to the euro, has since changed the role of Swiss franc-denominated assets in investors’ portfolios. That is to say that they’ve somewhat lost their safe haven appeal. 

As of this writing, the cap remains in place and will continue to be enforced by the SNB with “utmost determination” for as long as necessary. Despite bouts of weakness since the cap was introduced, the franc has remained high versus both the dollar and euro. However, Swiss exporters have proven relatively resilient to it, as evidenced by the strong performance of the SMI index ever since –e.g. the SMI was among Europe’s best performing benchmarks in 2013, with a gain of 23.9%.

Going forward, Swiss large exporters like Nestle, Richemont and Swatch will continue to benefit from the recovering international demand, especially that coming from Europe –a major trading partner. In Q2-2013, the Eurozone emerged from its longest-ever recession, which saw austerity measures and high unemployment restrict consumer spending. To offset slowing European consumption, Swiss companies have increased their exports to China and are now more dependent than ever on its economic growth. China is currently the fourth biggest importer of Swiss products behind Germany, the US and Italy. In four or five years, should the current trend continue, China is expected to become the second largest buyer of Swiss products after Germany. But China is slowing down too. Indeed, the world’s No 2 economy continues to post robust growth rates of between 7% and 8%, but these are lower than what the world had become accustomed to.

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Indexkonstruktion

The Swiss Market Index (SMI) is the benchmark index of the Swiss stock market. It is a free-float-adjusted index that comprises 20 of the largest and most liquid stocks listed on the Swiss stock exchange. The SMI represents about 85% of the total capitalisation of the Swiss equity market and its composition is examined once a year. The healthcare sector is the most heavily weighted, representing more than a third of the index's value, followed by consumer goods (27-30%), financials (16-20%) and industrials (8-10%). The index is very top heavy with Nestle accounting for 21-25% of the index’s value. The second and third largest stocks represented are pharmaceutical groups Novartis and Roche, which have a combined weight of 32-37%.

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Fondskonstruktion

This ETF uses physical replication to track the performance of the SMI total return index. The fund holds all the securities within the index in the same weightings stipulated by the index. As of this writing, the fund doesn’t engage in securities lending, which limits counterparty risk at the fund’s level. The fund pays out dividends once a year.

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Gebühren

This fund levies a total expense ratio (TER) of 0.30%, which is in the middle of the range for ETFs tracking the SMI. Additional costs potentially borne by the ETF holders but not included in the TER include rebalancing costs, and bid-offer spread and brokerage commissions when buy and sell orders are placed for ETF shares.

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Alternativen

There is no scarcity of options for investors looking to invest in the Swiss equity market. Providers including iShares, UBS and ComStage all offer their own funds tracking the SMI at TERs ranging from 0.25% to 0.50%. However, the iShares SMI (CH) (ex-CS SMI (CH)) is the largest fund tracking the SMI.

Another alternative is the Amundi MSCI Switzerland ETF, which charges a TER of 0.25%. Consisting of 36 stocks, the MSCI Switzerland is larger than the SMI but still very top heavy with the top 10 names accounting for about 90% of the index and very marginal exposure to the Swiss midcap market. 

PowerShares offers an alternative to market cap-weighted funds with its FTSE RAFI Switzerland ETF. The value tilt of this fund means it is likely to outperform SMI ETFs in rising markets but underperform in falling markets. Those concerned about the high concentration risk embedded in the ETFs that track the SMI or MSCI Switzerland and those looking for broader exposure to the Swiss market could consider ETFs tracking the SLI. The SLI index is made up of the 30 largest and most liquid stocks of the Swiss stock exchange but has a capping mechanism. The weightings of the four largest constituents and all the other stocks are limited to 9% and 4.5% respectively. These caps result in higher exposure to the industrials and basic materials sectors. iShares, UBS and db X-trackers offer ETFs tracking the SLI.

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Über den Autor Hortense Bioy, CFA

Hortense Bioy, CFA  is director of passive fund research in Europe.