Thomas Funk, Investment Director, Switzerland Equities, discusses how Swiss companies can achieve international growth and profit potential.
06 February 2025
What really characterises Swiss equities? There are two key elements that contribute to the growth of Swiss firms over time. First, a strong currency enhances the productivity of these firms, as we discussed in a previous article, “The Swiss franc – a blessing and a curse”. Second, the presence of differentiated products allows even very small companies that start in Switzerland to quickly emerge as international firms.
Swiss stocks may never appear cheap because they are generally profitable and grow well over time. You pay a little more for these firms, but over time, if you are patient and stick with it, I believe you can be rewarded.
Chart 1: Swiss Equities performance from 29 December 1989 to 21 December 2024
Source: GAM Investments, MSCI, Thomson Reuters, as at 31 December 2024.
For Illustrative purposes only. Past performance is not an indicator of future performance and current or future trends.
For Illustrative purposes only. Past performance is not an indicator of future performance and current or future trends.
Looking at the above chart, you can see that the Swiss Performance Index has outperformed the MSCI World Index since 1989. Recently, global stocks have been catching up, primarily driven by the US stock market, particularly the Magnificent Seven; these US technology companies have been the main reason behind the strong rise in the global index.
The strong performance of Swiss stocks over the last 10 years can be attributed to the difficult phase following the global financial crisis, during which the Swiss franc was very strong. Many Swiss firms adapted their business models, increased productivity, sharpened their product portfolios and became more international. This rising stream of profits can only occur when firms grow over time; if they are stagnant, investors would only receive dividends without seeing a strong increase in profits. This to us is the appeal of investing in Swiss stocks.
Swiss small and mid-cap companies are very international
Chart 2: Business activities of portfolio companies as measured by sales (as at 31 December 2024)
Source: Bloomberg corporate financial statements, GAM Investments calculations and estimates, as at 31 December 2024.
For Illustrative purposes only. Past performance is not an indicator of future performance and current or future trends.
For Illustrative purposes only. Past performance is not an indicator of future performance and current or future trends.
When you view our small and mid-cap portfolio companies as a whole, you can see where they conduct their business today. Switzerland accounts for less than 4% of their business activities, which is remarkable considering this is where they all started. The profits generated have been reinvested to create internationally active firms, and this transformation can happen quite quickly. For example, Medacta, a relatively young firm, is based in the south of Switzerland. Medacta's largest segment is hip implants. Founded in 1999, it has grown from its Swiss roots to operate in 60 countries within 25 years.
What is also quite astonishing is that Europe excluding Switzerland accounts for less than 40% of the business activities of these companies, while a significant portion is conducted in the rest of the world, primarily emerging markets. Their products can vary widely, from small sensors on semiconductor machinery in Taiwan, such as at the TSMC plant, to compressors on LNG tankers built in Korea or high-pressure compressors for specialised plastics in China for solar panels. These products are highly differentiated and add significant value for clients, which gives these companies the opportunity to distribute their products internationally.
Over time, the process of reinvesting earnings has transformed these firms from small Swiss companies into highly international entities at a relatively early stage in their corporate development. I believe this is a special strength of Swiss firms.
We must remember that everything in Switzerland started from scratch, with very small firms in a very small market and country. Let’s look at the following three Swiss firms. They come from very different segments but share a common trait: good profitability. This allows them to reinvest in their businesses and continue to grow.
Galderma
Galderma operates in dermatology and aesthetics. It was originally a spinoff from L'Oréal and Nestlé. After being spun off to private equity, it has become a stellar performer. Listed on the Swiss Stock Exchange at the start of 2024, it has shown impressive performance. Despite being a defensive business, we think it has substantial growth potential, especially in emerging markets. It is currently growing strongly with record net sales and double-digit year-on-year growth for the first half of 2024.1
INFICON
INFICON specialises in sensors for measuring vacuum purity. Switzerland has a special strength in high precision, and many companies have developed in the high vacuum environment. INFICON, along with VAT and Comet, provides an entry point into the semiconductor and semiconductor manufacturing field, where they occupy interesting niches and achieve good profitability.
Ypsomed
Ypsomed manufactures injection pens for self-administering medicines, such as insulin. As the dominant market leader for injection pens and autoinjectors, Ypsomed also supplies autoinjectors to Novo Nordisk for the self-treatment of various metabolic conditions. Despite competition from a Taiwanese firm, the current situation around Taiwan has given Ypsomed a competitive edge, making it a more favourable supplier in our view.
Strength and potential
Our team has strong views on selected Swiss firms. We favour firms that we think can provide good returns and can reinvest their profits into their business. Swiss equities have demonstrated remarkable resilience and growth over the years. Despite the challenges posed by a strong Swiss franc and global economic fluctuations, Swiss companies have successfully navigated these hurdles by enhancing productivity, refining their product portfolios and expanding internationally.
Looking ahead, we think the continued international expansion and strategic reinvestment by Swiss firms can potentially lead to sustained growth and good outcomes for investors.
Thomas Funk manages Swiss Small & Mid Cap and Swiss Sustainable Companies strategies at GAM Investments.
1Source: Galderma, July 2024.
Important legal information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. Specific investments described herein do not represent all investment decisions made by the manager. The reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future. No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Investors could lose some or all of their investments.
The MSCI World Index captures large and mid cap representation across 23 Developed Markets (DM) countries*. With 1,395 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The Swiss Performance Index (SPI) is a total rate of return index of 300+ stocks issued by Swiss companies whose shares are traded on the Electronic Bourse System. The SPI was developed with a base value of 1000 as of June 1, 1987. References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in indices which do not reflect the deduction of the investment manager’s fees or other trading expenses. Such indices are provided for illustrative purposes only. Indices are unmanaged and do not incur management fees, transaction costs or other expenses associated with an investment strategy. Therefore, comparisons to indices have limitations. There can be no assurance that a portfolio will match or outperform any particular index or benchmark.
The foregoing views contains forward-looking statements relating to the objectives, opportunities, and the future performance of the markets generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. Specific investments described herein do not represent all investment decisions made by the manager. The reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future. No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Investors could lose some or all of their investments.
The MSCI World Index captures large and mid cap representation across 23 Developed Markets (DM) countries*. With 1,395 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The Swiss Performance Index (SPI) is a total rate of return index of 300+ stocks issued by Swiss companies whose shares are traded on the Electronic Bourse System. The SPI was developed with a base value of 1000 as of June 1, 1987. References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in indices which do not reflect the deduction of the investment manager’s fees or other trading expenses. Such indices are provided for illustrative purposes only. Indices are unmanaged and do not incur management fees, transaction costs or other expenses associated with an investment strategy. Therefore, comparisons to indices have limitations. There can be no assurance that a portfolio will match or outperform any particular index or benchmark.
The foregoing views contains forward-looking statements relating to the objectives, opportunities, and the future performance of the markets generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.