Swiss equities: resilience, innovation and the currency question

Swiss equities: The strength of a seemingly uneventful market

"Switzerland has benefited from several structural advantages, both last year and this year. Its highly international economy and the quality of its companies’ products allow Swiss businesses to generate growth and position themselves in some of the most attractive opportunities globally.

Investors sometimes forget that a market perceived as relatively uneventful can deliver very strong performance. We saw this last year, and we are seeing it again today. In periods of uncertainty and volatility, investors continue to view Swiss equities as an attractive alternative to other markets."

Pharmaceuticals: A renewed appreciation of defensive growth

"Two or three years ago, the pharmaceutical industry was largely off investors’ radar. The sector had been somewhat overlooked, and perhaps investors had forgotten just how stable and consistent its cash generation can be over time.

This year, investors have reassessed the sector's potential. Dividend yields of around 3.5–4% in Swiss francs, alongside the prospect of continued dividend growth, have made these companies particularly attractive. Some investors have taken the opportunity to increase their exposure significantly."

UBS: The benefits of integration and scale

"UBS has now largely completed the integration of Credit Suisse, which it acquired on highly attractive terms following the bank's collapse. At the same time, European banks more broadly have performed well across their businesses, delivering attractive growth.

For UBS, this has supported a remarkable re-rating. During the integration, the market was pricing in considerable uncertainty. As the strength of the combined business has become clearer, investors have gained confidence in its ability to generate capital consistently.

UBS is an enormous institution, and once a business of this scale gains momentum, its capacity to generate capital becomes increasingly evident."

Lindt & Sprüngli: When pricing power meets consumer resistance

"The main reason for Lindt & Sprüngli's recent share price correction has been the impact of higher cocoa prices. The company responded by raising its selling prices to offset the increase in raw material costs. However, the last two rounds of price increases were particularly aggressive, prompting a significant decline in volumes, especially in Germany and Switzerland.

The premium chocolate segment remains relatively resilient compared with the lower-quality end of the market. Nevertheless, even premium consumers become more cautious when prices rise too far.

The company has begun to address this by adjusting prices and hedging cocoa at lower levels. This should provide scope to recover margins, rebuild volumes and strengthen the brand following the challenges of recent months."

Medical technology: Swiss innovation beyond the major indices

"We are particularly enthusiastic about medical technology, where the strengths of Swiss industry are perhaps most clearly demonstrated. Innovation, high added value and specialist expertise are central to the sector.

Swiss companies often provide a relatively small component of a much larger overall product or procedure, but that component can be indispensable to its quality and performance.

Companies such as Sonova, in hearing care, and Straumann, in dental implants, demonstrate how innovation can support attractive long-term growth.

Against the backdrop of enthusiasm for artificial intelligence, these businesses have sometimes been overlooked because they are not delivering annual growth of 30–35%. Yet they continue to grow consistently. For us, they illustrate how Swiss innovation can create lasting value, both for customers and shareholders."

The Swiss franc: Temporary weakness or a longer-term trend?

"We have recently seen some weakness in the Swiss franc, which has surprised investors. There are two main explanations.

First, Switzerland remains something of an island when it comes to inflation and monetary policy. Inflation is around 1%, comfortably below 2%, while much of the rest of the world is still grappling with inflationary pressures. With Swiss short-term interest rates at zero, capital has been attracted towards currencies offering higher yields.

The second factor relates to developments in Japan. Hedge funds have traditionally used the yen as a funding currency for carry trades, borrowing in a low-interest-rate currency to invest in higher-yielding assets. As Japanese interest rates rise, investors are looking for alternatives, and the Swiss franc, with its zero interest rate, is becoming one of them.

However, I see these movements as temporary. Switzerland's lower inflation, economic stability and underlying strengths should continue to support the currency over the longer term. I would expect the Swiss franc to resume its gradual appreciation against other major currencies."