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Active Thinking: Applying Swiss precision to a global investment opportunity set

Swiss companies’ reach is probably more global than you realise. Daniel Häuselmann discusses how a combination of Switzerland’s stability and mindset of excellence through innovation have helped Swiss companies to become leaders on the world stage.

23 February 2024

For a landlocked country with a population of only 9 million and a landmass of around a tenth of France and Germany, Switzerland punches far above its weight on the world stage. And the worldwide reach of Swiss companies is no less remarkable. While global megacaps like Nestlé spring to mind, the Swiss market includes a plethora of innovative, efficient and well-managed companies at the top of their game, successfully competing for market share across all corners of the world.

So, far from being about the domestic market, when you invest in Swiss equities, you are buying into companies with a long history of sustained global growth based on strong management and innovation, all built on the bedrock of one of the world’s most stable countries.

To understand why Swiss companies are so successful internationally we need to take a closer look at the Swiss investment case:

Domestic bliss – why a stable home base is key for global success

Switzerland has one of the best-balanced and most secure economies globally. Switzerland is all about resilience and stability as the country’s prudent fiscal policies and a robust financial system can help Swiss companies to plan long term with confidence. The stable domestic political environment – with referendums underpinning the direct democracy model – robust property rights and moderate levels of taxation combine to fortify the strong and secure domestic environment from which Swiss companies plan their global strategies.

Diversified global revenue mix

Swiss stocks enjoy a truly international blend of revenue streams. Far from being hemmed in by their relatively small home market, many Swiss companies have turned the tables on rivals with a larger captive domestic market. In practise, many Swiss companies have a truly global presence, with revenue sources that extend far beyond Europe’s borders. Some have a focus on higher growth such as the Americas and Asia, including emerging markets, enhancing their potential for attractive earnings growth and improved margins.

Outward-looking mindset

Lacking natural resources like fossil fuels and metals, Switzerland has no mainstream energy sector to speak of, and has seen no mining operations in many decades. But, rather than be held back by this lack of natural resources, Switzerland has found other ways to succeed, fostering a mindset of creativity and value-creation.

Evolution through innovation and education

Swiss companies thrive on innovation, with a long-term commitment to R&D delivering fresh thinking and new products in sectors from IT, finance to pharmaceuticals. Thanks to their evolution through innovation, globalisation has helped many Swiss companies to scale up their success on a worldwide basis, helping them to prosper on the international stage. A key driver of innovation among Swiss companies is their ready access to fresh talent; the Swiss education system is among the best-ranked in the world, providing Swiss companies with access to a supply of the brightest young minds. What is more, Switzerland marries a strong sense of national identity with an open, multi-national mindset, with a record of success in integrating international cultures.

From headwind to tailwind – lean & mean in the age of the strong Swiss Franc

The long-term firmness of the Swiss franc has been a driving to force behind improving operational efficiency across Swiss businesses. Swiss companies, used to the trading headwinds of a strong currency, cannot stand still, so have evolved to be efficient and highly competitive on a global basis. In that sense, the long-term currency headwind has been flipped to act as more of a tailwind that drives a culture of finding new and improved ways to do business.

Nominal trade weighted Swiss Franc
From 1 Jan 1990 to 31 Jan 2024

Nominal trade weighted Swiss Franc 
Past performance is not an indicator of future performance and current or future trends.
Source: Bloomberg

Performance consistency over the long term

Sectors such as pharmaceuticals and consumer staples – well represented in Swiss market indices through the likes of Novartis, Roche and Nestlé – are normally associated with defensive qualities, giving the Swiss market resilient characteristics though uncertain times. But such is the strength of these firms’ global franchises and the sheer scale of the segments they operate in, even these defensive, high quality Swiss heavyweights can offer a growth element for investors.

Moving marginally down the capitalisation scale, the Swiss market also features globally recognised names in sectors such as materials, industrials, financials and luxury goods (for example, Sika, ABB, Zurich Insurance and Richemont). Complement these leading names with a burgeoning Swiss small and medium-sized companies, some in sectors many investors may not immediately associate with Switzerland (such as IT and logistics) and, collectively, Swiss equities represent quality growth companies, with an impressive track record, delivering consistency over the long-term for investors.

Swiss companies’ formula for long-term success speaks for itself. Over the last 35 years, Swiss companies have outperformed their wider European, US and global counterparts.

Swiss companies: outperforming the world over 35 years

Swiss companies: outperforming the world over 35 years 
Past performance is not an indicator of future performance and current or future trends.
Source: Thomson Reuters, MSCI
The views are those of the manager and are subject to change.

So investing in Swiss equities is not so much about the Swiss economy – rather, it is about targeting global revenue growth opportunities via Swiss-based companies with a focus on excellence, efficiency, innovation, sustainability and truly global ambition.

In this regard, the Swiss stock market represents a rich hunting ground for investors like us, targeting growth, quality and sustainability on a medium-term investment horizon. Our experience tells that well-managed growth companies can be found in both defensive and cyclical sectors in the Swiss market.

In our view, backing companies acting on the Swiss tradition of growth through geographical expansion and market penetration through innovation and excellence will stand investors in good stead over the medium and long term. As global economic clouds clear, we believe that a new earnings cycle should begin this year and that Swiss companies, from megacaps to their small & mid-cap counterparts, are well-placed to deliver on the global stage.

Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends.The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. Specific investments described herein do not represent all investment decisions made by the manager. The reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future. No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Investors could lose some or all of their investments.

The foregoing views contains forward-looking statements relating to the objectives, opportunities, and the future performance of markets generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.

GAM is delighted to have won the coveted 2024 €uro Fund Awards for its Swiss Equities strategy. The award honours the funds and ETFs that have achieved the best, second-best, and third-best performance in their investment category over 1, 3, 5, 10 and 20 years.

Daniel Haeuselmann

Head of Swiss Equities
My Insights

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