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THE SWISS HELVETIA FUND, INC. November 3, 2017 For the three-month period ended Swiss economic review September 30, 2017, the performance of The Swiss economy as measured by The Swiss Helvetia Fund, Inc. (the “Fund”), gross domestic product (“GDP”) grew by as measured by the change in value in the 0.3% in the second quarter of 2017 Fund’s net asset value (“NAV”), increased (quarter over quarter). Private and 0.87% in US dollars (“USD”). For the same government consumption had a positive period, the Fund’s share price perform- impact as well as investments in ance increased 0.62% in USD, as the construction and equipment. The trade discount at which the Fund traded its balance had a slightly negative impact on shares slightly widened. This compares GDP growth. Due to lower than expected with an increase of 2.05% in the Swiss GDP growth in the first half of 2017, Performance Index (the “Index” or “SPI”) expectations for 2017 were revised in USD. Since the beginning of the year, downwards to 0.9% from 1.4% by the State the Fund’s NAV and its share price Secretariat for Economic Affairs (“SECO”) increased 20.42% and 25.17%, respectively, in September 2017. The SECO also expects in USD. This compares with an increase of unemployment to decline moderately to 22.28% in the Index in USD. 3.2%. Economic environment during the period Market environment during the period under review under review Global economic review Equity markets experienced another The global macroeconomic environ- positive quarter, both in local currency and ment remained positive in the third USD terms for global, European, US and quarter of 2017. The International Mone- Swiss equities. Due to its defensive nature, tary Fund (“IMF”) slightly increased its in USD terms, the SPI underperformed the forecast from April by 0.1%, as the upward MSCI World, MSCI Europe and S&P 500 revisions in the euro area, Japan, emerging indices. This was driven in large part by Asia, emerging Europe and Russia more the underperformance of Nestlé within the than compensated for a downward food and beverage sector. Due to its high revision in the United States (“US”). The weight in the Index, Nestlé contributed Global Purchasing Manager Index (“PMI”) -0.78% to the performance. Small- and remained at 54. mid-cap stocks outperformed large-caps in Switzerland (3.4% compared to 1.8%). 1 THE SWISS HELVETIA FUND, INC. Swiss Performance Index Q3 2017 Contributions to Index performance by sector Health Care 0.81% Personal & Household Goods 0.56% Banks 0.40% Industrial Goods & Services 0.38% Construction & Materials 0.21% Insurance 0.17% Financial Services 0.16% Chemicals 0.12% Technology 0.09% Telecommunications 0.07% Utilities 0.00% Automobiles & Parts 0.00% Basic Resources 0.00% Travel & Leisure 0.00% Media -0.01% Real Estate -0.02% Retail -0.02% Food & Beverage -0.79% -1% -0.5% 0% 0.5% 1% Source: Schroders, Bloomberg, as of September 30, 2017. Performance measured as total return in USD. Sectors mentioned should not be viewed as a recommendation to buy/sell. Portfolio composition is subject to change over time. Investors cannot invest directly in the Index. Performance Compression, GAM and VAT. Furthermore, In comparing the Fund’s NAV return being underweight in Nestlé, ABB and Swiss Re of 0.87% to the Index’s return of 2.05% in had a positive impact on relative perform- USD, there was a positive relative ance. However, negative contributions to performance impact from some of the relative performance came from overweight Fund’s larger overweight positions, such positions such as Belimo, Implenia, Feintool, as Tecan, Swatch Group (Reg.), Burckhardt Cembra Money Bank and Aryzta.WithSika, 2 THE SWISS HELVETIA FUND, INC. Zurich Insurance and Givaudan, the Fund Portfolio changes had negative contributions to relative In total, there were eight purchases performance from stocks not held by the and eight sales of listed equities on a net Fund due to valuation concerns. basis during the third quarter of 2017. As of September 30, 2017, there are 38 listed The Fund’s private equity positions as companies held by the Fund and seven a whole experienced a minor positive re- direct private equity investments, valuation, primarily due to slight valuation including one participation in a private increases for Aravis and Spineart. equity limited partnership. New Investments Positions Entirely Disposed of Autoneum Dufry Zur Rose Swiss Re Landis+Gyr Bucher Industries BKW OC Oerlikon Additions to Existing Investments Reductions in Existing Investments Forbo Julius Baer Aryzta Credit Suisse Baloise UBS Burckhardt Compression The Fund established new positions in Autoneum is an automotive supplier BKW and Autoneum. In addition, the Fund that is attractively valued and is expected participated in the initial public offerings to grow its profits. We are confident in (“IPOs”) of Landis+Gyr and Zur Rose. management’s ability to sustainably BKW primarily operates in the regu- increase margins by continuous cost lated part of the electricity market and improvements. therefore we believe that it should enjoy a Landis+Gyr is one of the world’s stable price environment. Additionally, leaders in smart meter solutions for util- BKW has diversified into services related to ities. We expect Landis+Gyr to be able to installation and smart grids. As a increase their margin in Europe. consequence, we expect BKW to offer a more predictable stream of profits Zur Rose is a leading online pharmacy, compared to more volatile electricity which we believe is well positioned for producers, a benefit that we think has not structural growth due to its potential to been priced into the shares. reduce healthcare costs. 3 THE SWISS HELVETIA FUND, INC. After buying an initial position in 2.3% from 2.4%. The combination of Baloise during last quarter, which is a steady growth and low inflation could medium-sized insurance company, we mean we remain in a goldilocks environ- continued to increase our position. ment where activity is neither too hot nor Similarly, we increased our existing posi- too cold with little inflation risk. tion in Forbo. On a regional level, our US growth We used the weakness in Aryzta’s forecast is unchanged for 2017 while an share price to increase our holding in the upgrade to the Eurozone has been stock. accompanied by a stronger forecast for China and the wider emerging markets. On We reduced UBS further to an inflation, we have reduced our forecasts underweight, as we expect subdued across the board to reflect a lower oil price private client activity levels to persist for profile and subdued core readings. In some time. For the same reason, we Switzerland, the SECO reduced its growth reduced the Fund’s holdings in Credit expectations for 2017 from 1.4% to 0.9%. Suisse and Julius Baer. Julius Baer remains For 2018, however, the forecast has been an overweight position. slightly increased from 1.9% to 2.0%. Notably, the export sector is expected to We sold our positions in Dufry, Swiss contribute to this growth, supported by Re, OC Oerlikon and Bucher Industries. Both good global activity as well as the weaker Oerlikon and Bucher were sold after strong Swiss franc. Sector wise, various segments share price performance. We sold Dufry should benefit in Switzerland; besides after the release of its half year figures pharmaceuticals and chemicals, machining, and its announcement to partially IPO its electronics, watches, and tourism are each operations in the US. In our opinion, this is expected to accelerate. not in-line with the company’s previously announced strategy. Prior to Hurricane On the policy front, the long road Irma making landfall, we decided to from financial crisis to recovery passed reduce our position in Swiss Re. another milestone in September when the Federal Reserve (“Fed”) announced that it Outlook and Investment View would start to reduce its $4.5 trillion The recovery in global activity remains balance sheet from October. The asset intact while inflation appears to have purchase programme, or Quantitative peaked following a stabilization in energy Easing (“QE”), is finally being unwound costs. We continue to forecast global with the Fed set to allow maturing bonds growth at 3.0% this year after 2.6% in 2016, to run off its balance sheet rather than but have trimmed our inflation forecast to continuing to roll them over. The shift 4 THE SWISS HELVETIA FUND, INC. away from QE is a welcome development strong end markets, the appreciation of as it signals another step toward normality the euro against the Swiss franc should after the global financial crisis. support earnings for Swiss companies. For the moment, as long as the economic In summary, we expect continued environment remains favorable and as global growth, but the acceleration in long as there are no significant external activity that began in mid-2016 seems to shocks, we don’t see a high probability for have run its course. Near-term indicators a significant correction of stock markets. support this view with the PMIs for both Looking ahead to 2018, however, further developed and emerging markets peaking positive earnings momentum is necessary at a high level. Our G7 activity indicator in our view as stock markets seem to be (based on surveys from the US, Europe late in the cycle and valuation multiples and Japan) has levelled out. Also in are rich, at least in absolute terms. Relative Switzerland, the latest PMI reading of 61.7 to bond markets, equities still remain is at a high level. attractive with a current dividend yield of 3% for the Swiss market, versus slightly The positive economic environment is negative interest rates.