Switzerland is more diverse than you think

When investors select the SMI or SPI Swiss market indices, they often think they’re investing in Switzerland. That’s only partly true.

Many investors seek an easy way to invest in the Swiss economy, or to be more exact, a single financial product that represents the Swiss economy. To the surprise of many, neither the SMI nor the SPI is that. The Swiss market is made up of many more industries and company sizes than are included in either the SMI or the SPI.

These graphs show the breakdown of the SMI and the SPI by industry. Even though the SPI holds many more stocks than the SMI, it is not much more diversified across industries. The third graph shows the breakdown of the Swiss gross domestic product by industry. Notice how much is represented by pharmaceuticals, consumer goods (noted as ‘goods’ in the chart) and Nestle. For example, travel and hospitality account for a large portion of the Swiss economy but are not represented in either the SMI or the SPI.

The most diversification is seen in the Obermatt Swiss Pearls Index, shown below next to the SMI and SPI.

Size matters

Diversification isn’t only about holding a range of industries. It’s also about the sizes of the companies held. The SMI, by definition, is made up of the companies with the largest market capitalizations, hence the dominance of XXL and XL companies.

The SPI includes large companies, like the SMI, but it also contains many small (‘S’) and even extra small (‘XS’) companies. Neither of those types of companies have analyst coverage or high trading volumes. Both of these factors can make those small companies rather risky investments.

The Obermatt Swiss Pearls Index also includes medium-sized stocks, which are absent from the SMI but does avoid the very small, risky stocks that are included in the SPI, namely the stocks with the sizes S and XS according to the Obermatt classification are marked in red.

A gap in the marketplace

The weaknesses in the SMI and SPI are exactly what drove us to create the Obermatt Swiss Pearls Index, 36 stocks that better represent the Swiss economy. It is based purely on Swiss stocks that Obermatt covers - those with enough trading volume and analyst coverage - ranked by their Obermatt 360° View. These 36 stocks are selected based on their performance across numerous financial and non-financial metrics, not simply their market capitalization (as drives the SMI and the SPI).

The Obermatt Swiss Pearls index is investable and traded on Switzerland’s SIX stock exchange, thanks to our partners Maverix Securities and Amasus Investment AG.