Swiss central bank is down 40% in one month

Swiss National Bank’s stock is down 40% in one month (and -55% since 2018 peak). The SNB is a rare central bank whose shares are listed. 

In the aftermath of the 2008 financial crisis, the central bank of Switzerland, which is also listed on the SIX Swiss Exchange, assumed the role of an investment fund, in addition to its functions of a central bank. Unlike the Fed, BoJ, ECB or the BoE, the SNB’s policy is to invest in assets denominated in foreign currencies.

As such, SNB’s investment approach is to create new Swiss francs (i.e. short CHF) and invests the foreign currencies from their sale (i.e. long assets denominated in foreign currency). For many, the SNB is seen as the “largest hedge fund in the world”.

The size of SNB balance sheet as of end of 2019 was CHF 860 billion (i.e. larger than Swiss GDP). The SNB made a profit of 48.9 billion Swiss francs ($50.71 billion) last year. As of the end of December, foreign assets were invested as follow: 69% government bonds, 11% other bonds and 20% of equities.

The SNB is a special-statute joint-stock company with a public mandate and dividend being restricted by law to 6% of share capital. The performance of SNB stock has been phenomenal over the last few years. But given recent market action, it might be difficult to repeat such a performance this year.

Charles-Henry Monchau CFA, CMT, CAIA is the Managing Director - CIO & Head of Investments at Al Mal Capital (a subsidiary of Dubai Investments)