2023 was certainly a positive year for the stock market, with major indices such as the EURO STOXX 50, the DAX and even the S&P 500 appreciating by around a quarter. Even the rather more sedate Dow Jones managed to grow just under 14 per cent. Much more modest, though, was the performance of the Swiss stock market: the SMI lagged significantly behind on a regional comparison, posting a 3.8 per cent rise. Among the factors dragging on the leading domestic index were the strong franc and the weakness of share prices in the heavily weighted health sector. In Lonza and Roche, two healthcare stocks occupied the last two places in the performance ranking. On the subject of heavyweights, Nestlé was another SMI titan to see a fall in its stock market value. The share price of the food giant dropped almost nine per cent, putting it third from bottom. Among the trio of Nestlé, Novartis and Roche, which together account for almost half the market capitalisation of the index, only Novartis managed to see any growth.
That the SMI managed to finish 2023 in the black at all can be attributed in part to Roche’s rebound. Its participation certificates climbed more than three per cent in December after the group entered the anti-obesity drug sector with an acquisition worth billions of francs. Nevertheless, Roche was down nearly 16 per cent over the year as a whole. These developments show once again the high dependency of the Swiss Market Index on the three colossi of Nestlé, Novartis and Roche. This rather puts the mostly positive year-end reports – a total of 14 of the 20 blue chips ended the year with price gains – into the shade. Eleven SMI members even managed a double-digit percentage increase. With rises of around a quarter to just below half, low capitalisation stocks such as Partners Group, Logitech and Geberit are top performers even by international standards, but they only make a below-average contribution to the SMI’s performance because of the way the index is designed.
The spreading of risk is one of the most fundamental principles of investment in securities, because diversification has been shown to reduce the danger of losses. Some years ago the SIX Swiss Exchange addressed the risk of clustering by introducing a new cap to the SMI. To reduce the dominance of the heavyweights, in 2017 the weighting of the biggest stocks in the SMI was limited to 18 per cent. At the time Nestlé and Novartis were above this limit. Although the weightings have been adjusted to a maximum of 18 per cent in the quarterly index reviews ever since, the risk of clustering in the leading Swiss index remained, as 2023 demonstrated so impressively.
While the new rules did not necessarily make the SMI more attractive, investors wanting to invest their money in Swiss equities have a clever alternative. The “FuW Swiss 50 Index”, which was brought into being by the editorial team of leading business paper Finanz und Wirtschaft, not only performs much better by comparison, but also deals with the problem of the concentration of individual members in the SMI. The FuW Swiss 50 comprises the 50 largest Swiss companies, providing a representative and well-diversified snapshot of the Swiss equity market. Last year the index concept performed almost six percentage points better than the SMI and also much better than the SPI.