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Switzerland: A Safe Haven
03/04/2014 10:00 am EST
What makes a good hedge and safe haven? A strong, stable currency with ample liquidity, financial and political stability, and a market-based, rules-driven, open economy. Switzerland fits the bill nicely, suggests Carl Delfeld, editor of The Value Bounce.
Despite a population of only 7.2 million, Switzerland packs a punch and is a financial and multinational powerhouse. Switzerland has the highest per capita income in the world.
The Swiss franc is backed by ample gold reserves, fiscal discipline, a trade surplus, and very little foreign debt. Outward looking, Switzerland has 40% of its gross domestic product attributed to exports.
Switzerland represents the third-largest financial center in the world, after New York and London. It is also home to world-beating pharmaceutical, engineering, and food companies.
Switzerland enjoys a stable government, vibrant democracy, and a reputation as an asset haven in times of stress. The Swiss have had a functioning democracy for 500 years and, actually, have a fairly weak central government, with a legislature that meets for only two weeks, four times a year (good idea for US Congress?).
Meanwhile, the Swiss stock market is trading at a discount to the S&P 500. Now how should Switzerland become part of your portfolio?
Large, blue-chip global companies are almost always in favor due to attractive price-to-value valuations, entrenched brand names, and dominant market shares, proven management teams, solid free cash flows, and double-digit growth potential.
The iShares Switzerland (EWL) is a wonderful way to gain exposure to a basket of Switzerland's leading multinationals and has an expense ratio of only 0.59%. In addition, while a rising Swiss franc puts pricing pressure on Swiss exporters, a strong Swiss franc supercharges returns for investors in EWL.
My favorite stock pick is Nestlé (NSRGY). This consumer giant has a share-buyback program, a focus on growth in emerging consumer markets, and a rising dividend.
In addition, ABB (ABB) is terrific infrastructure play and has been on a tear, winning power and automation-technology contacts all over the world.
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