Investment

Chart of the Month – David & Goliath

by Marie-Caroline Fonta

David & Goliath

Source: Bloomberg, NS Partners

In modern times, the expression « David and Goliath » has taken on a popular meaning, denoting an underdog situation, when a little guy faces a bigger power, a taller person. This is an interesting parallel when we consider and confront companies of different sizes in a market.

When it comes to investing in Switzerland, we tend to pick Nestlé, Roche, Novartis among others. A portfolio’s exposure to Switzerland is often exclusively concentrated on the large caps. However, the Swiss market is just as interesting, and more diverse, when you decide to look at smaller companies. By definition, the Swiss market has demonstrated a defensive nature over time. This market is export-oriented, largely specialising in high added value products and full of specific and niche companies. It is easy to find and invest in companies with, among others, stable earnings, low beta and constant dividend. The Swiss performance extra price return index is a capitalization-weighted index composed of all companies in the SPI small & mid cap excluding any companies in the SMI Index. Over the last 5 years, performance is +66.39% (+10.73% annualised) against +54.68% (+9.12% annualised) for the famous SMI Index. This is also true over the last 10 years and, in the shorter term, over the last three years.

In terms of composition, both indices are in line across all sectors with the big difference being the exposure to the industrial and health-care sectors. With a smaller exposure to health-care and a larger exposure to industrials for the small and medium sized companies index -a sector that tends to perform well in expansionary phases and has historically reacted positively to rising inflation.

The best performers on an annualised basis over the last 5 years are Bachem (specialising in the development and manufacture of peptides and oligonucleotides), Straumann (a leader in implant and esthetic dentistry), as well as Swissquote (the leading Swiss online bank) and industrials VAT Group (high-performance vacuum valves, multi-valve units) and Interroll (products for unit-load handling systems, internal logistics and automation). They all outperformed the SMI components.

Investing in smaller companies requires being selective. You are exposing yourself to other possible issues such as liquidity, possibly lower margins and higher valuation, but on average, you get a similar dividend level and companies are in an acceleration phase of growth, facing rapid innovation.

Just like David and Goliath, in Switzerland, the little guy wins!

 

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only.

References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document.

This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer.

 Additional information is available on request.

© NS Partners Group

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