High yields in a safe haven

The Swiss Market Index (SMI) is Switzerland’s blue chip stock market index, made up of 20 figures of the largest and most liquid large- and mid-cap stocks of Swiss companies. The securities contained in the SMI currently represent more than 90 per cent of the entire market capitalisation, as well as of 90 per cent trading volume of all Swiss equities listed on the Swiss Exchange. The SMI had a market capitalisation of around $1.14 trillion (Dh4.18 trillion) as of this year.
Major stocks on the index include ABB, Credit Suisse, Nestlé, Novartis, Roche, Swatch Group, Julius Baer, UBS and many other blue chips. Over the decades, the index rose from its baseline value of 1,500 points in 1988 to 6,665 points on October 5, with little swings even during the worst global crises, except for UBS and Credit Suisse, two banks that gave the Swiss stock  market a bit of heartburn during the 2008-09 meltdown.
“Switzerland has always benefitted from its safe haven attitude, especially when the rest of the world faced financial turmoil,” Albert Groner, affiliate capital market analyst at Germany-based investment broker Capital Associates, tells GN Focus. “Even during the current EU debt crises, the country did not suffer that much due to its meticulous currency policy and the strong fundamentals of its large companies.”

Currency of choice
The well-deserved reputation for discretion and privacy is accompanied by low tolerance for inflation among Swiss policymakers. The franc, at many occasions in economic history, has been the currency of choice for Americans looking to escape rampant inflation or seeking other means of protection.
With the prolonged financial crises in the US and the EU, Switzerland is popular again. With most bond yields of financially stable countries such as Germany below 1 per cent, dividend yields of Swiss blue chips are standing out. Zurich Financial, with 7.14 per cent, currently has the highest dividend yield in the SMI index, followed by other majors such as Swisscom, Novartis, Roche, ABB and Nestlé, all with a dividend yield between 3 to 5 per cent, according to data by the Swiss stock exchange.

Renewed confidence
In fact, Swiss stocks advanced to a 19-month high on October 5, reflecting new confidence in the US and EU economies. The Swiss economy, although predicted to grow more slowly in 2012 and 2013, is forecasted to remain stable in the mid-term.
The Swiss exchange in Zurich has also undergone a regulatory reform lately by revising the Stock Exchange Act, which introduces standards for combating market abuse more efficiently.
Stockbrokers continuously recommend Swiss blue chip to be added to investment portfolios in 2013.
“For first timers, the banks UBS and Credit Suisse are probably not the first choice. I would rather recommend looking for a good entry point at Swiss Life Holding or Julius Baer in the financial sector, or Adecco, Syngenta or Life Science Group Lonza,” says Peter Schieder, financial market analyst at European bank UniCredit.
Those seeking full exposure in the Swiss stock market through a single financial instrument can consider iShares MSCI Switzerland ETF, a basket of Switzerland’s biggest and most influential companies, or Julius Baer’s Swiss Stock fund series, Vanguard’s Switzerland Stock index Fund or the Swiss Helvetica Fund by SWZ, all of which invest in SMI blue chips and have shown an impressive track record.

How to invest in Swiss stocks

Open a trading account with a licensed Swiss stockbrokers and deposit a reasonable amount of start-up capital. Stick to blue chips in the SMI first.
Analyse cash flows and price-to-earnings ratios, review financial statements and look into the stock’s short- and long-term trading history.
After investing, track your portfolio thoroughly. Don’t be scared by short swings. The Swiss market is not isolated from the world economy, but is far more resilient than many other countries.
To benefit from high dividend yields, stock should be held over several quarters or years.