Update: UBS ETF (CH) SMI

Wer ein Investment in diesen ETF erwägt, muss wissen, dass rund zweidrittel des Fondsgewichts aus nur drei Aktien besteht. Ungeachtet der großen Kostenvorteile sind wir nicht überzeugt, dass dieser ETF seine aktiv verwalteten Konkurrenten im Schnitt Risiko-adjustiert übertreffen wird.

Hortense Bioy, CFA 16.06.2017
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We lack confidence that this highly concentrated fund will beat its Switzerland Large-Cap Morningstar Category peers in the long run on a risk-adjusted basis.

The fund tracks an exchange benchmark, the Swiss Market Index, which is extremely narrow and top-heavy. It includes only 20 constituents, and the top three--Nestle, Novartis, and Roche--account for about 60% of its value, exposing investors to significant firm-specific risk. This make-up also inevitably results in high sector concentration, with healthcare accounting for around 40% of the index's value and consumer goods and financials combined representing another 40%. This makes it a less than ideal investment proposition relative to funds with a broader mandate.

Performance-wise, the fund has failed to impress when compared to the average peer in the category, which consists of both active and passive funds. It has underperformed on a risk-adjusted basis over three and five years, although the 10-year category-relative performance looks better. Meanwhile, tracking difference (fund return – index return) has been good. The fund has lagged its underlying benchmark by less than its ongoing charge of 0.21%. UBS ETF business is efficiently run by a team of experienced professionals.

Ultimately, because of its concentration and despite the quality of its holdings, we lack confidence that this ETF will beat the average fund in the category over the long term. And on this basis, we have awarded it a Morningstar Analyst Rating of Neutral.

Investors seeking broader and more representative passive exposure to the Swiss market could consider ETFs that track the SPI. The Swiss Performance Index consists of around 200 holdings, including mid- and small caps. The iShares Core SPI (CH) is the cheapest, with an ongoing charge of just 0.10%.

Fundamentale Analyse

The SMI comprises some of Europe’s biggest and highest-quality companies with significant competitive advantages, or wide “economic moats,” by virtue of having either exclusive patents or well-recognised brand names. These include not only multinationals like Nestle, Richemont, or Swatch, but also defensive heavyweights like Novartis and Roche, which are able to maintain a competitive advantage with their portfolio of patented drugs and robust R&D budgets, which support new drug discovery.

Thanks to their high value-added nature, these companies weathered the global financial and economic crisis better than many others. They also showed resilience to the strong franc, which, driven by its safe-haven status, appreciated considerably after the crisis.

In an effort to contain franc appreciation, support growth, and prevent sustained deflation, the Swiss National Bank introduced a CHF/EUR 1.20 foreign exchange peg target in September 2011. In January 2015, the SNB took many by surprise by dropping the peg, and, to discourage Swiss franc appreciation, the bank also cut interest rates to negative 0.75%. This negative rate setup remains in place as of this writing.

The Swiss franc, nevertheless, is still considered too strong and continues to weigh on exporters, especially those that generate most of their sales outside Switzerland but manufacture domestically.

Another source of risk for Swiss companies remains the slowdown in emerging markets, particularly China. Swiss companies have increased their exports to China and are now more dependent than ever on its economic growth.


The Swiss Market Index is the benchmark index of the Swiss stock market. It is a free-float-adjusted index that composes 20 of the largest and most liquid stocks listed on the Swiss stock exchange. The SMI represents about 90% of the total capitalisation of the Swiss equity market and its composition is examined once a year. The healthcare sector is the most heavily weighted, representing 38%-42% of the index's value, followed by consumer staples (22%-25%), financials (16%-20%), and industrials (7%-10%). The index is extremely top heavy, with Nestle and Novartis accounting for 18%-24% of the index’s value each. The third-largest stock represented is Roche, with a 16%-20% weighting.


The fund uses full replication to track the performance of the SMI on a total return basis. The fund buys all the securities within the index. The fund invests in all the constituents of the index with the same weightings stipulated by the index. Routine cash stock dividends are reinvested according to index rules using an "overdraft" facility available from the custodian, State Street Bank. This practice helps reduce tracking error. The fund engages in securities lending to help improve tracking performance. Gross lending revenue is split 60/40 between the fund and lending agent State Street Bank, respectively, while the latter covers all the operational costs. In the 12 months to this writing, the fund lent out 6.7% of its assets on average and a maximum of 18% at any point in time. The activity generated 0.0018% of net revenue for the fund. Although this activity serves to enhance returns, it also introduces counterparty risk. To protect the fund, borrowers are requested to post collateral equivalent to 105% of the loan value. Counterparty risk is monitored on a daily basis by the lending agent. As a general rule, the amount of securities that can be lent by the ETF at any point in time is capped at 50% of its net asset value. To further mitigate counterparty risk, State Street also provides borrower default indemnification in the event a borrower is unable to return the securities. UBS ETF business is efficiently run by a team of experienced professionals. The company runs a mixed physical-synthetic product lineup with a strong bias to equity market exposures. The fund management process is focused on achieving cost efficiencies, although this does not necessarily lead to lower ongoing charges. UBS has made a big business bet in the areas of currency-hedged and ESG-themed ETFs. It is worth noting that the Swiss-domiciled UBS SMI (CH) ETF is not compliant with UCITS regulation and therefore is only authorised for commercial distribution in Switzerland and Liechtenstein.


At 0.21%, the fund's ongoing charge is among the lowest of passive offerings in the category. Meanwhile, the fund has lagged its underlying benchmark by an amount that is less than its ongoing charge. Additionally, ETF investors will typically be charged trading costs, including bid-offer spreads and brokerage commissions, when buy and sell orders are placed for ETF shares.


There is only one other SMI ETF available, namely the iShares ETF (CH) SMI, but it charges a higher fee of 0.35% and its performance has been worse.

Alternatively, UBS offers an MSCI Switzerland ETF for an ongoing charge of 0.21%. The MSCI Switzerland, which consist of 36 stocks, is larger than the SMI, but still very top-heavy, with the top 10 names accounting for about 90% of the index and very marginal exposure to the Swiss mid-cap market.

Those concerned about high concentration risk could look at ETFs tracking the Swiss Leader Index. The SLI index consists of the 30 largest and most liquid stocks on the Swiss equity market and has a capping mechanism. The index weighting of the four largest constituents is limited to 9%, and the weighting of all other stocks to 4.5%. As a result, this fund has higher weightings in industrials and basic materials. UBS provide the cheapest options tracking the SLI (strictly in terms of ongoing charge) at 0.22%.

Finally, those looking for broader and more representative market exposure could consider ETFs tracking the Swiss Performance Index, which is composed of large, mid-, and small caps. IShares Core SPI (CH) charges an ongoing charge of 0.10%.

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Über den Autor

Hortense Bioy, CFA

Hortense Bioy, CFA  ist Global Head of Sustainability Research bei Morningstar