JEAN PIERRE VERSTER: Swiss neutrality is good for investors
Switzerland is the poster child for political and economic stability
Geopolitical developments can have a significant influence on investment decisions. This has again been clear over the past two weeks, with markets around the world experiencing heightened volatility over the US election outcome. The longer your investment horizon, the more you favour policy certainty and a stable political environment, which allow companies to plan for the long term.
Due to its direct model of democracy and foreign policy principle of neutrality, Switzerland is the poster child for political and economic stability. The good business environment has created enormous wealth for the country and its citizens, with the average wealth of a Swiss adult now exceeding $600,000.
This is the highest of any nation in the world for which such data is available, according to Credit Suisse’s "Global Wealth Report 2020". Switzerland also consistently ranks in the top five of the annual "Global Competitiveness Report" published by the World Economic Forum. The country has some great companies listed on the Swiss Stock Exchange. Here are some of our favourites:
Sika is a speciality chemicals company, primarily serving the construction and motor vehicle industries. It was founded in 1910 by Kaspar Winkler, who invented chemical agents to clean granite and waterproof mortar. Today, Sika operates in over 100 countries, with more than 300 factories worldwide. It is a world leader in the development and production of bonding, sealing, damp-proofing, reinforcing and weather-protecting products. From tile grouting to concrete additives to waterproofing resins, Sika offers it all, across more than 900 product brands. There is a good chance that Sika products were used in the construction of your home or office.
A global private equity firm with roughly $100bn under management, Partners Group manages a broad range of funds for an international clientele of institutional investors, mostly pension funds. The firm has an impressive track record of outperformance, assisted by having invested significantly into essential infrastructure such as toll road operators, wind farms and fuel pipelines. Performance fees represent almost a third of revenues, at the upper end of the firm’s guidance for the long-term contribution of this highly variable type of fee revenue. Notwithstanding this high base, the investment skill that Partners Group shows in its niche of private market investing gives comfort that these fees should not evaporate anytime soon.
Roche is the second-largest pharmaceutical company in the world, with a market capitalisation of over $300bn. Due to its ownership of US-based Genentech, Roche is also the largest biotech company in the world. The company is a leader in the fields of oncology, immunology, ophthalmology, neuroscience and infectious diseases. Two Roche staff members have won the Nobel prize for medicine. The company’s high-volume Covid-19 test received approval from the US Food & Drug Administration earlier this year. While many governments are becoming uncomfortable with pricing strategies in the pharma sector, saving a life is priceless, ensuring high margins for research-driven firms like Roche.
Lindt & Sprüngli
More commonly known as Lindt, this company is synonymous with premium Swiss chocolate. In 1879 chocolatier Rodolphe Lindt developed the recipe for the first smooth-melting chocolate — the "chocolat fondant". Prior to his invention, chocolate was difficult to process, with a sandy consistency and bitter taste. Lindt chocolate is popular, especially the Lindor chocolate balls and the Gold Bunny. The caveat here is that almost all cocoa supply comes from the Ivory Coast and Ghana, which are not the most politically stable countries, adding a peculiar supply chain risk to an otherwise simple pleasure.
November 19 is World Toilet Day. In developed countries, the average person flushes a toilet five times a day, but nearly 40% of the world’s population still lacks access to a toilet, according to the World Health Organisation. Toilets are clearly a growth market, one in which Geberit is a leading player. Albert Emil and Leo Gebert manufactured a revolutionary cistern and reliable flushing mechanism in 1905, very much the same design as we use today. Since then, Geberit has expanded its product range to over 80,000 items, including pipes and ceramics. There aren’t many businesses as defensive as this.
A great business will not turn out to be a great investment if too high a price is paid for its shares. On this measure, we are not overly excited about the prospect for above-average returns from the Swiss equity market. We stand ready to buy shares in some of the companies mentioned here at lower prices, but for now, we maintain a neutral stance on Switzerland.
- Verster is CEO of Protea Capital Management
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