At first glance, the Swiss stock market is a model of conservatism and stability that rarely attracts hunters of super-profits. However, as my calculations and data from the last 100 years show, this is precisely where what many analysts call a "cheat code" for an investor operating in dollars is hidden. This refers to double-digit returns achieved through a unique combination of stock growth and currency carry trade.
What is the essence of the strategy?
The key element of this strategy is the difference in interest rates. Currently, the Swiss National Bank (SNB) rate is 0%, while the Fed rate exceeds 4%. When a dollar investor buys Swiss stocks, they automatically gain exposure to the Swiss franc (CHF). If the currency risk is then hedged back into dollars, this interest rate difference (carry) is paid to the investor. In effect, hedging not only costs nothing but also generates additional income.
By my estimates, the total expected return of such a strategy is approximately 7.7% per annum from the growth of the stocks themselves plus about 4% from the carry. In total, this yields a double-digit figure — and this is when investing in the "most boring stock market on earth," as it has been aptly dubbed. Data from Pictet, tracking this market since 1926, confirms its reliability: since 1931, no ten-year investment in Swiss stocks has been unprofitable.
Practical nuances and objections
Of course, this strategy also has a downside. The carry exists precisely because the franc is historically prone to strengthening, and the 4% hedging income persists only as long as the interest rate gap remains. However, as long-term data shows, the fundamental stability of the Swiss market and its "compounder" companies (such as Nestle and Roche) mitigates these risks.
Critics rightly point to the complexities of dividend taxation for foreigners. Indeed, direct stock ownership may be less attractive due to taxes. But, as major banks (Goldman Sachs, Deutsche Bank) note, this issue is resolved at the deal structuring level. For institutional investors and qualified private individuals, this is not an insurmountable obstacle.
My analysis: Swiss stocks are not just a defensive asset but a highly effective tool for generating alpha in a dollar portfolio. While markets chase noisy stories, the most profitable deal may be quietly waiting in the safest market. It is like Swiss watches or chocolate: outwardly conservative, but inside — flawless engineering of returns.