About the author
Head of Swiss ResearchMore Articles
Trends in individual equities: Winners vs. losers “made in Switzerland”
The “stock market spring” of 2021 is likely to be one of the “main events”: one that many investors will remember. Could there be a proverbial “stock market autumn” following in its wake? Closely linked to this is the question of what the trends were – apart from COVID – that led to the rally.
Learn why looking at trends isn’t always the most critical factor when evaluating equities. And why the Swiss stock market is able to incorporate many trends very well.
In times of soaring share prices, sooner or later many investors begin to ask: “how long can this go on? When has the time come when I shouldn’t be going in any deeper, but rather getting out – and taking my profits with me?”
This question doesn’t arise simply because there may be more and more apprehension about the next bear market or big crash. It also arises because of the increasing need to distinguish real value and long-term potential from merely riding the current upward trend – in other words, the need to be able to separate the wheat from the chaff.
Investors will be hoping they can make this precise distinction successfully, so that they are able to keep benefiting from the upward trend for longer. And the less susceptible their investments will be to sell-offs that will eventually take place later.
“Not all technology is created equal – and the same goes for trends.”
A popular way to orient yourself in the maze of opportunities and risks is to stick to the big trends. You will hear things like, “Digitization will determine the winners – and the losers.” Or: “Thanks to COVID, pharmaceutical companies are at a big advantage.”
Even though you may be surrounded by statements like these, you would still have to respond to them by saying, “Well, yes and no.”
This is because if you are only looking at the markets through the lens of a trend – i.e., top-down – you may overlook the flip side of the coin. Which is, namely, that not every market participant in the technology sector will benefit equally from the much vaunted “fourth revolution.” On the contrary. If the “Big Five” from Silicon Valley teach us one thing, it’s this: Developing disruptive technologies is not enough; what you have to disrupt is markets.Or in other words: It’s a “winner takes all” world.
This experience and knowledge, combined with systematic research work, makes it possible to identify winners and losers within individual trends. To do this, the industry in which a company operates is important, but also which technologies and business models are behind their business activity, how consistent management is in the execution of its strategy, or how well it integrates ESG criteria.
“How a company integrates or exploits a trend is often at least as important as the trend itself.”
The following comparison shows how much the total return (share price appreciation plus dividends paid out) of individual companies within the same industry can diverge after just five years. The comparison was made taking Swiss companies that are in a similar market position. To illustrate the possible divergence in returns to investors, we have chosen the best performing vs. the worst performing equity.
Thank you for your interest in our bottom-up research on Swiss Equities. To display this content, please specify your domicile by registering via email.
To see the examples, please click the link in the confirmation email we send you. This link expires after 24 hours.
Current research results show that on average, Swiss shares have weathered the COVID crisis moderately well to very well, apart from individual exceptions such as shares of companies in the travel industry. However, if you attribute these outcomes only to the market environment of the last few months, you are failing to recognize four key factors that can make Swiss shares more crisis-resistant.
The safe haven that the franc offers many investors turns out to be both a curse and a blessing for Swiss export companies.
For decades, Swiss companies have had to make up for a currency disadvantage on the world market that makes price leadership strategies difficult or impossible right from the outset. This is the curse. However, this disadvantage tends to push them into the role of innovation leader instead, which is the blessing. They occupy this position partly in global markets or else in the segment of small and mid-cap firms operating in niche markets in which they have established market leadership. Companies in these market positions have repeatedly proven to be less vulnerable in times of crisis.
The Swiss market is a small market. Consequently, for Swiss companies the greatest potential for growth is almost always outside their own country.
This export pressure drives Swiss companies to integrate insights gained in foreign markets into their products, business models, and strategies at an early stage. This includes, among other things, the ability to scale their own business across national borders.
From a historical viewpoint, Swiss federalism has many hallmarks, but rapid change is not one of them.
From a business perspective, this is reflected in a pronounced degree of legal certainty. Regulatory provisions are established to be valid for the long term, and this means that changes can be foreseen and planned for. Regulations are also less likely to either favor or disadvantage individual competitors.
Switzerland as a business location enjoys an excellent international reputation – despite the comparatively high wage levels here.
Companies that set up in Switzerland give more weight to the fact that they will encounter flexible labor markets here, can count on a highly qualified workforce, and will contend with a moderate tax burden. This in turn favors innovative capabilities and ultimately the opportunity to gain a strong market position and maintain staying power through crises.
Anyone who judges winners and losers on the Swiss stock market is doing so for a very special part of the world market. Trends such as global technological change or the integration of ESG criteria can fall on fertile ground here. But even trends such as those affecting the travel industry, which have caused sleepless nights in other Developed Markets, can also have an impact in Switzerland. That is why it is always worthwhile complementing the “top down” view with a “bottom up” perspective.
You entrust us with the management of your assets, benefiting from our extensive investment expertise.
Select up to 14 megatrends according to your convictions – risk-monitored and actively managed by our experts.
derinet will help you find your way through the world of structured products. Take a look at our comprehensive product range.
This publication was created by Bank Vontobel AG, Zurich (Vontobel). The document is expressly not intended for persons who, due to their nationality or place of residence, are not permitted access to such information under local law. This publication is marketing material, is provided for information purposes only, and does not take into account individual needs, investment targets, or financial circumstances. The publication does not constitute an offer, a solicitation, or a recommendation to use the Vontobel service described in it, to purchase or sell securities or other financial instruments, or to take part in an investment strategy. Capital expenditures in financial products and markets pose various risks (e.g. market, currency, or liquidity risks). Before making an investment decision, investors should obtain personal advice from their financial and tax advisor concerning the risks associated with the investment and their personal situation. The content, scope, and prices of the services and products described in this publication are governed exclusively by the agreement concluded with the individual investor.
The information and/or documents offered on this website represent marketing material pursuant to Art. 68 of the Swiss FinSA and are provided for information purposes only. On request, further documents such as the basic information sheet or the prospectus are available free of charge whenever you wish. The products, services, information, and/or documents offered on this website may not be accessible to individuals domiciled in certain countries. Please note the applicable sales restrictions of the respective products or services.
© Vontobel Holding AG 2021. All rights reserved.