Switzerland Is the Quality Play

03/22/2010 11:54 am EST

Focus: ETFS

Carlton Delfeld

Editor, The La Jolla Letter and Pacific Gains

Carlton Delfeld, editor of Around the World with ChartwellETF.com, says Switzerland’s market and currency are good bets for risk-averse investors.

According to Citi chief economist Willem Butler, “More than 40% of global [gross domestic product] now resides in jurisdictions (overwhelmingly in the advanced economies) running fiscal deficits of 10% of GDP or more. For much of the past 30 years, this fluctuated in the 0%-5% range and was dominated by emerging economies.”

Switzerland is an exception. The Swiss franc is one of the most stable currencies in the world and performs well in times of financial turmoil. Investors will be moving to quality companies, countries, and currencies.

Currency traders have been building up bets on a rise in the Swiss franc in anticipation that the Swiss National Bank [would] soften its stance on currency intervention. At its widely anticipated policy meeting on Thursday, [the central bank said it would not buy foreign currencies indefinitely to weaken the franc.]

The FT reports that Paul Meggyesi, FX strategist at JPMorgan, says that “Switzerland had a relatively mild recession and is enjoying a fast recovery compared with its peers.” In addition, Switzerland’s current account surplus, high private savings, and low sovereign risk is in sharp contrast to Euro zone instability.

While only 137 miles by 216 miles in size, with a population of 7.2 million, Switzerland packs a punch and is a multinational powerhouse. It has a strong currency backed by ample gold reserves, fiscal discipline, 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, a 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.

About 45% of the iShares MSCI Switzerland Index ETF’s (NYSEArca: EWL) holdings are concentrated in three great companies: Nestle (OTC: NSRGY.PK), Roche Holdings AG (OTC: RHHBY.PK), and Novartis (NYSE: NVS), all of which are pretty good defensive plays.

The P/E ratio for the Swiss market is in line with the Standard & Poor’s 500 index and lower than almost all other major European markets. I also like this ETFs sector breakdown, led by health care (32%), financials (22%), [and] consumer staples (19%). You will sleep better with Swiss quality in your portfolio.

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