Swiss pension fund managers who outperformed the Swiss market last year hope to do so again in 1997, but are concerned about prospective levels of returns.
The approach will need to be highly selective, says one manager. His favoured stocks are pharmaceuticals and fi-nancials, and he has plans to increase his holding in mid-caps, in view of their im-proved performance. He ex-pects the sector to benefit from the weaker Swiss franc, with its boost to exports.
He believes it will be possible to outperform the market again, partly by spotting the main beneficiaries from the weaker currency and the slight upturn in the economy both in Switzerland and across Europe.
But larger funds are frustrated by the limits on foreign bonds and equities that they can hold, when the local scene is quieter.
Switzerland has relaxed its legally required holdings of securities, but fund managers want further change and would like more freedom to invest in foreign securities in particular. For the larger, more internationally oriented funds, it is clear that the practical effect of the law is to limit foreign holdings.
Jean-Paul Steiner, managing director of the Nestlé Pension Fund, says he is frustrated with the restrictions on allocations although he points to one article in the pensions ordinance that allows deviation from the quota under special circumstances. Nestlé has made full use of it, he adds.
Obviously a situation with no maximum would be ideal,” he says. “It is not such a dream. One hundred per cent is the maximum in the UK and the US. Of course it would mean more responsibility for pensions trustees.”
Steiner says that the new regulations are moving in the right direction and is hopeful that the trend towards flexibility will continue.
As one pension manager puts it: “We would prefer to hold less Swiss equity but we are restricted by the law.” Another adds that the stipulations of holdings within Switzerland was much less important than limits on foreign holdings, saying: “We would like to see an increase in foreign holdings to 50% from the current 30%.”
However, others are wedded to the domestic market. One fund manager prefers to retain the largest part of his equity holdings in blue chips, adding that almost all his holdings are long term. His favourite holdings are pharmaceuticals, although he expresses confidence in all Swiss multinationals, adding that the Swiss are fortunate in having blue-chip companies that are highly regarded internationally.
One well established fund regards its domestic equity stakes as being long term. “We have a number of core holdings in major Swiss groups, which we do not trade,” says its manager. The extent to which these groups are Swiss is debatable, since they derive a significant part of their earnings from abroad. “Their performance is more affected by what is happening internationally, particularly in the US, than in the domestic economy. Are they really Swiss companies any longer?” This is one way of obtaining international exposure, while remaining within Swiss domestic limits.
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