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

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

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.