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A Safe Haven in Swiss Stocks
10/08/2019 5:00 am EST
While I remain an optimist on markets here and abroad, I know there are investors a bit unsettled by all the uncertainty, or looking to hedge the more aggressive growth stocks in their portfolio, asserts Carl Delfeld, international investing expert and editor of Cabot Global Stocks Explorer.
You may also be just getting started with international investing and looking for conservative ideas.
Are there some better safe haven options around the world other than just gold or government bonds?
There sure are. And Swiss stocks are the place I’d start. But before I get into why, let’s look at what makes a good safe haven.
Strong, stable currency with ample liquidity
Its currency should demonstrate deep liquidity so that investors can move in and out of it without sharp movements in price. It needs to be widely recognized as a reserve currency.
Financial & political stability
The fiscal discipline and political stability of the country needs to be unquestioned. Countries with large fiscal deficits are unable to be dependable safe havens since the path of least resistance is to devalue the currency to make debt loads more manageable.
Market-based, rules-driven, open economy
Investors and trading partners thrive best in a market-oriented economy where the rules are clear and transparent. Faith in the fairness of the judicial system and institutions is vitally important.
Swiss stocks and the Swiss franc fit the bill nicely.
For starters, Switzerland is home to four of the five largest firms in Europe in terms of market value: UBS (UBS), Nestlé (NSRGY), Novartis (NVS) and Roche (RHHBY). These companies are increasingly tapping into emerging market growth.
In addition, Switzerland has the highest per-capita income in the world. While only 137 miles by 216 miles in size, with a population of 7.2 million, Switzerland is a financial and multinational powerhouse.
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.
The country boasts 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. Voters actually defeated a referendum that would have implemented a shorter workweek and longer vacations.
All men between the ages of 20 and 42 are required to engage in military training each summer, resulting in an army of 625,000. Swiss guards have protected the Vatican since 1506.
Swiss Stocks in an Uptrend
This all sounds pretty good, right? Now, the question is, how should you make Switzerland part of your portfolio?
The iShares MSCI Switzerland ETF (EWL) is a wonderful way to gain exposure to a basket of Switzerland’s leading multinationals. And it’s in a strong uptrend — up 22.8% so far in 2019.
Large, blue-chip global companies are in favor due to attractive valuations, entrenched brand names, strong market shares, proven management teams, solid free cash flows and double-digit growth potential. And the EWL is heavily levered to those types of companies.
Included in the Switzerland ETF basket are firms such as Nestlé, a consumer giant focused on emerging consumer markets, and ABB (ABB), a great play on global infrastructure and automation-technology.
Having a shot of Swiss stocks in your portfolio will help you sleep better at night. You can’t go wrong buying Swiss quality, if the price is right.
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