Many investors want to invest in the Swiss economy and often do so through the SMI or SPI market indices. Both are comprised of Swiss companies, but they aren’t as diversified as one would think. That can have a negative impact on risk and return. We show you why the ETP on the Swiss Pearls Index might be a safer option due to its diversification and rules-based stock picking strategy.
The Swiss Market Index (SMI) represents the 20 largest and most liquid companies in Switzerland. This means it's heavily concentrated in large-cap stocks, like Nestle and Novartis. The SPI (Swiss Performance Index) is broader, including a much larger number of large, mid, and even some small-cap companies. However, the smaller companies often lack analyst coverage and trading volume, which can increase their risk. Also, even though the SPI covers all of these different companies, it is still heavily weighted towards the large-cap players.
The Obermatt Swiss Pearls Index (OMSP1) takes a different approach. It doesn’t just look for the largest or most liquid stocks but rather the ones that perform well according to Obermatt’s stock rankings. It also looks to have a diversified selection of stocks, across not just industry but also company size. While it includes some large-caps, it also incorporates mid-sized companies with strong growth potential. This approach aims to balance the stability of larger companies with the upside potential of smaller ones.
The benefit of OMSP1's diversification is potentially lower risk. When large-cap stocks in the SMI underperform, the OMSP1, with its mix of sizes, might hold steady. Conversely, if smaller companies in the SPI outperform, the OMSP1 could still benefit from its exposure to larger, more stable companies.
On top of all this, the stocks are selected according to their Obermatt 360° View performance, making sure of the quality of the stocks and their performance. Individual personal opinions do not sway the selection of stocks in the index. We at Obermatt and our partners, Amasus Investment and Maverix Securities are transparent about the index constituents and do monthly stock swaps and rebalancing.
If you're looking for a Swiss stock market option that emphasizes diversification and lower risk, the OMSP1 might be worth exploring. Note that, while diversification can mitigate risk, it's not a foolproof safety net. Market conditions and unforeseen events can still impact any index. It's important to do your own research and understand your risk tolerance before investing.