Trends in individual equities: Winners vs. losers “made in Switzerland”
Published on 07.10.2021 CEST
The “stock market spring” of 2021 is likely to be one of the “main events”: one that many investors will remember as vividly as the turbulent year 2022.
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.
Read in this article:
“Big trends”: What will determine the winners and losers?
Taking the “bottom-up” view: Are Swiss equities safe(r) investments?
Winners among peers: Research results
“Swissness” in the portfolio: Why David’s DNA is shared by Goliath
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.
Taking the “bottom-up” view: Are Swiss equities safe(r) investments?
From a practical point of view, even while taking trends into consideration, it’s advisable to look closely at individual equities from a bottom-up perspective. Analysts who have been covering a company or sector for years and even decades have an advantage here. This is because they often have the advantage of direct access to top managers and decision makers. Vontobel deliberately fosters this bottom-up approach and has eleven in-house analysts with a combined 200 years of research experience in the Swiss stock market.
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.”
Winners among peers: Four examples of a comparison
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.
“Swissness” in the portfolio
Why David’s DNA is shared by Goliath
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 Swiss franc as a driver of innovation
The safe haven that the franc offers many investors turns out to be both a curse and a blessing for Swiss export companies.
National borders are not a barrier to success
The Swiss market is a small market. Consequently, for Swiss companies the greatest potential for growth is almost always outside their own country.
The stability of the Swiss legal and regulatory systems
From a historical viewpoint, Swiss federalism has many hallmarks, but rapid change is not one of them.
Location factors close the circle
Switzerland as a business location enjoys an excellent international reputation – despite the comparatively high wage levels here.
Conclusion
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.
Legal notice
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.
24.02.2022 CET
Long-term implications
|Market impact
|Public debt
|Insights
|Perspectives 2022
|Geopolitics
Inflation in an investment context: What to watch out for
Inflation can have a significant impact on investors. The basic features of this theme were covered here. This follow-on article, will clarify which price indices serve as a measure for inflation and which asset classes and sectors can be recommended in an inflationary environment.