A lot of stockbrokers are early risers. To best prepare themselves for the day, they study the day’s news, the latest research or Wall Street forecasts even before trading opens. The fresh inputs of investors, analysts and strategists are then discussed in telephone or video conferences or the morning in-person meetings, where managers seek to draw the right conclusions for the orientation of their portfolio. Not only has this “morning call” become a fixture on the daily schedule of banks, research institutions and brokers, it has also long been a popular media format. Once a week BX Swiss TV releases a video entitled “Morningcall”. “Every Wednesday, before the markets open, investment strategist François Bloch and stock market expert David Kunz chat about selected top equities from the BX model portfolio,”, is how the stock market operator describes this broadcast.
Managers have recently added to their service, calculating the BX Swiss Morningcall Index since 3 July 2023. This new benchmark tracks the model portfolio of BX Swiss. Its composition is the responsibility of an index committee, which can choose from a large equity universe consisting of blue chip companies from developed markets, although the focus is on Europe and North America. Selection is determined by both hard and soft factors. In the former category, analysis begins with the market capitalisation. Only companies with a stock market value of at least 1 billion USD/EUR/CHF are considered. These stocks are then filtered down based on various fundamental indicators such as the price-earnings ratio, return on capital, return on sales, book value per share, earnings per share and for a technical perspective, the relative strength index. The aim is to identify stocks which are posting strong growth in profits but at the same time are not overvalued.
The price-earnings ratio (PER), for instance, puts the share price in relation to earnings per share. In essence, the ratio indicates how many years it will take for a company to “earn” the price to be paid for the share. The general principle is that the higher the PER, the more expensive the share – and vice versa. To enable an actual assessment of the valuation, the ratio is compared with the value of other companies from the same branch of industry. Other ratios indicating real quality that are considered in the selection process include the book value per share and the return on sales. While the book value represents the equity attributable to one share, the return on sales reveals how profitably a company runs its business. This ratio is hugely important, because it gives an indication of how efficiently a company employs its resources and whether it keeps its costs low relative to income.
Among the soft factors is that stocks need to enjoy a certain level of recognition to be considered for inclusion in the BX model portfolio. Another soft quality criterion is the leadership role within a sector. It is not uncommon for companies which are leaders in their branch of industry to have a particularly hefty price clout and thus be able to maintain or even improve their margins despite an inflationary cost environment. It's a similar picture for champions within a certain sector. Technology leaders, for instance, are attractive in this regard. Twenty-two shares are ultimately selected on the basis of all factors. The composition is not yet set in stone: the BX Swiss Morningcall Index is put on the test bench once a month, when companies can be replaced. Investors are always kept in the picture about which stocks the index committee has its eye on at the time: each week, three selected shares of the model portfolio/index are presented and discussed in the BX Morningcall programme. The weightings of the index components are also equalised on the monthly selection day.
