Swiss pension funds are increasingly turning to equal-weighted indices and small-cap equities as a way to reduce concentration risks in global equity markets.
Francesca Pitsch, head of the pension fund study published by Swisscanto, told IPE that two trends are gaining traction.
“First, foreign currency risks are being hedged more frequently. Second, there is growing interest in equal-weight or fundamentally weighted indices, given the extremely high concentration of large US tech companies,” she said.
However, Pitsch added that these approaches are unlikely to become market standard.
“Therefore, we expect a greater strategic weighting [by pension funds] in small-cap or Swiss equities,” she added.
Swiss equities delivered an above-average performance last year of around 16.7%, compared with 6.2% in 2024, according to the Pensionskassen-Monitor study published by Swisscanto this month.
On average, Swiss pension funds allocate around 30% of total assets to equities, with roughly one-third invested domestically and two-thirds globally.
However, concentration risks are already high in the Swiss equity market, making an overweight to domestic stocks counterproductive, according to Romano Gruber, team leader for asset manager selection and illiquid assets at PPCmetrics.
From today’s perspective, it is also unlikely that Swiss pension funds will significantly reduce their equity exposure to the US, Gruber added.
The pension fund of the city of Basel, Pensionskasse Basel-Stadt (PKBS), for example, plans to maintain its index-oriented equity strategy and will not cut exposure to US equities despite concentration risks and elevated valuations.
Equity investments are often indexed to reduce costs and ensure broad diversification. Fund structures are also common, Gruber said, partly because of stamp duty considerations linked to direct investments.
Equity exposure under scrutiny
Swiss pension funds have come under scrutiny for allocating too little to equities and potentially missing opportunities to enhance long-term returns.
Multi-employer pension fund Profond invested more than half of its CHF12.8bn in assets under management in equities in 2024. Assets under management rose to CHF16.9bn by the end of 2025, based on a provisional total return of 5.3%.
In a statement, Profond said it prefers tangible and real assets – equities, real estate and infrastructure – over bonds because they generate higher real returns and help preserve purchasing power.
“Nominal assets have a limited yield potential and, when inflation rates are high, their real cash value falls. Diversified tangible and real assets can protect against a total loss in times of crisis, while nominal assets can then be eroded by inflation,” the statement said.
While many pension funds would like to increase equity exposure to boost long-term returns, legal constraints and risk tolerance remain key obstacles.
“Pensions are guaranteed, and the retirement savings of active members are also subject to capital protection. Thus, retirees do not bear any equity risks, and in the event of price declines, the active members and employers must bear the risks alone,” Gruber said.
As a result, a significant increase in equity allocations is unlikely, he added.
Under occupational pension law, pension funds may allocate up to 50% of their portfolios to equities, with higher levels possible if sufficiently justified.
Pension funds ranking in the top 10% for net returns over the past five years tend to invest disproportionately in equities and alternative assets, and significantly less in bonds, Pitsch added.
