What is the reality behind Swiss Made? 

• Onur Von Burg
  Managing Director, Member of the Investment Committee, CIIA
  Banque Heritage

While the behavior of home bias is worldwide, it takes a unique dimension in Switzerland, where the equity market is characterised by high sectorial concentration. But behind this preference lies a crucial question: are we really investing in Switzerland by choosing the SMI (Swiss Market Index)? Aren’t the benefits of the index largely a national mirage? Far from the protection we imagine, the”patriotic investor often finds himself exposed to global risks while believing he is securing his portfolio locally. This myth needs to be deconstructed to better understand the impact of home bias on real investment performance.

While it is now easier to invest internationally via ETF funds, many Swiss investors still allocate a substantial proportion of their portfolios to domestic equities. This preference is no accident: it can be explained by a feeling of familiarity, the perception of lower risk and easier access to information. Who would not feel reassured by the idea of investing in local companies, whose products are ubiquitous and whose management is more easily scrutinised? Investors often feel that they have a better understanding of local businesses, regulations and economic dynamics

Beyond simple preferences, investing in Switzerland offers significant advantages, particularly for domestic investors. For example, currency risk is reduced because returns are denominated in Swiss francs. This is a major advantage when it comes to protecting portfolios from adverse currency fluctuations. Given the Swiss franc’s reputation as a safe haven, this factor can also contribute to greater portfolio stability, particularly in the face of global financial turbulence.

High concentration risk

With iconic multinationals such as Nestlé, Novartis and Roche, Switzerland offers an attractive equity market for domestic investors looking for quality and stability. However, this national preference comes wiht significant risks of sector concentration. The SMI is dominated by the healthcare, consumer goods and financial sectors, which account for over 75% of the index. The three giants – Nestlé, Novartis and Roche – alone account for a substantial proportion. This structure creates a high concentration risk, forcing local investors a disproportionate exposure to a limited number of sectors and companies, thereby reducing the diversification of their portfolios. 

As the chart below shows, the SMI has a much higher concentration of its three main components than other markets with similar risks. This situation can lead investors to neglect high-growth sectors such as technology or communication services, or geographies likely to outperform the domestic market.

%  of total Index

Eight accounts in foreign currency

A key question in the context of “national preference” is the true “Swissness” of the revenues of companies listed in Switzerland.  A revealing indicator of this reality is the number of SMI companies that publish their financial statements in a foreign currency. Of the 20 companies in the SMI, only 12 publish their accounts in Swiss francs, which means that almost 50% of the index, in terms of market capitalisation, is made up of companies that have adopted other currencies. The majority opt for the US dollar, while Richemont is the only one to publish its accounts in euros. There are obvious reasons for this: companies like Novartis and Logitech generate a large proportion of their revenues internationally, and only a fraction of this is denominated in Swiss francs. Using a foreign currency for financial reporting reduces distortions caused by exchange rate fluctuations and avoids misinterpretations of operational performance.

Another important factor in assessing the ‘Swissness’ of SMI members is the geographical distribution of their revenues. Contrary to popular belief, many large companies generate only a small proportion of their sales in Switzerland. According to Bloomberg data, companies such as Givaudan, Sonova, Roche and Alcon generate a single-digit percentage of their sales in Switzerland. Companies like Swisscom, which derives around 75% of its revenues from the domestic market, are the exception rather than the rule. Even Geberit, with around 11% of its revenues coming from Switzerland in 2024, ranks among the top domestic revenue generators. This reality calls into question the notion of “Swiss Made” and suggests that the performance of the SMI is more influenced by global economic trends than by those of the Swiss economy.

No real diversification

National preference, often driven by emotional reasons or a sense of security, can threaten the key principle of investment: diversification. In a globalised economy, company revenues are influenced more by global dynamics than by local demand. Ignoring this reality and concentrating your portfolio on the Swiss market exposes you to certain risks and can foster a false sense of security. The current uncertainty, exacerbated by recent decisions on tariffs, further weakens the case for Swiss companies, given that many SMI companies generate a large proportion of their sales in the United States

Given this unstable economic climate, exacerbated by Trump’s recent statements, how long can investors, who are certainly protected by the Swiss franc as a safe haven, afford to overlook the importance of diversifying their investments beyond Switzerland’s borders?