Page 21 - ASSET MANAGER 10 (EN)

ROGER FROMM
Managing Director INVESTORY AG
+41 (0)78 880 47 03 info@investory.ch
ASSET MANAGER • NO. 10/2019 SMI SCALE • 21
SWISS MARKET INDEX (SMI®)
STANDARD FOR SWISS SHARES
Anyone who wants to know how the Swiss stock exchange has developed over the past year generally refers to the best-known Swiss stock index SMI (CH0009980894), which is constantly calculated by the SIX Swiss Exchange.
Author: Roger Fromm, Founder, INVESTORY AG
The SMI summarises the performance of the 20 larg- est Swiss companies, weighted by market capital- isation.
Until September 2017, market capitalisation alone was decisive for the calculation in the SMI. The stock mar- ket heavyweights Nestlé, Novartis and Roche alone make up 58.3% of the SMI. The SIX Swiss Exchange decided to introduce a limit rule to comply with the EU's ESMA-UCITS international diversification guidelines.
Since September 2017, stocks with weight exceeding 18% in the SMI will be capped at 18% on a quarterly index review. Between the index reviews, when two stocks in the index exceed 20%, the shares are down- graded to 18 %.
The change in the rules came into effect on 18 September 2017, including the transitional provisions.These provide for a gradual reduction in the weight of the largest index components: They are reduced by 3% per quarter until their weight reaches a maximum of 18% of the SMI.
Since the introduction of this new calculation scheme, there have been adjustments. With the first adjustment on September 18, 2017, Nestlé's weight was reduced by 12.3% and that of Novartis by 7.3%.The second adjust- ment on 18 December 2017 increased Nestlé by a total of 13.9 % and Novartis by 1.9 % due to interim market movements. This rebalancing takes place quarterly and is only visible to licensees of the SIX Swiss Exchange.
At the same time as the rule change, SIX Swiss Exchange launched a new index called SPI 20 PR (CH0368313760), which corresponds to the old composition without cap- ping.
If one compares the SPI 20 PR -9.4 % with the SMI -10.2 % for 2018, this capping results in a difference of 0.8%.The broader, well-known Swiss Leader Index (SLI), with 30 companies, has always had a cap of 9 %. In 2018, the SLI lost 14.6 %, representing a deviation of more than 43 % from the SMI.
Nestlé, Novartis and Roche have less weight in the SLI, and therefore, cushion the negative environment less. Without these three companies, the SMI would have lost more than 21.8% in 2018 with the 17 remaining compa- nies. Thus, a normally diversified Swiss equities portfolio is closer to -20 % than -10 %.
The three indices of: SMI, SLI and SPI 20 PR are price indices and do not consider dividends. Should an adjust- ment in the SMI come soon, then it could affect Adecco, Julius Baer or SGS.