Swiss ETF (EWL): Are Swiss Stocks "Decoupling" from U.S. Stocks?

Writers have focused a great deal of energy on the January and/or March lows for the stock market. That's with good reason -- investors crave information that refutes or supports the idea that we've seen the bottom.

Very little attention was focused on the month of February, 2008. That probably explains why you haven't seen a story about the possible "decoupling" of Switzerland stocks from their U.S. counterparts.

From the October highs all the way through the 3rd week of February, there was little difference between the movement of the iShares MSCI Switzerland Index Fund (EWL) and the movement of the 500 largest U.S. companies in the SPDR S&P 500 Trust (SPY).

Then it happened. The Swiss ETF began charting its own path higher. In just 5 weeks time, the Swiss ETF had a "spread" of 10 percentage points over the S&P 500 Trust.

Even as the mega-giant Swiss bank UBS (UBS) writes down humongous losses from U.S. sub-prime debt, the Swiss ETF hasn't been hampered that dramatically. Tom Lydon of ETF Trends noted that the country boasts political neutrality, low inflation, low unemployment and strengthening economic growth.

Yet none of these factors explain the dramatic change in sentiment circa February 21. What does explain it? A huge spike in demand for the Swiss Franc.

The Currency Shares Swiss Franc Trust (FXF) literally skyrocketed from the 3rd week of February to the final week of March. It managed 10% appreciation against the struggling U.S. dollar in that short-time period.

With the Currency Shares Swiss Franc Trust (FXF) performing remarkably well as a safer haven from global equity risk... perhaps it is premature to declare that Swiss stocks are separating from U.S. stocks. If one requires greater exposure to old and newer Europe stock assets, one should be more comfortable with an allocation to the MSCI European Monetary Union Fund (EZU). (Read more about this exchange-traded fund here.)

Disclosure Statement: As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

Comments

[Pennington:]

I've wondered if FXF could come under pressure from the recent stories about nations wanting to lift the secrecy from swiss banks. That being said, I have no idea if their currency stability has anything to do with many citizens and institutions worldwide to keep their reserves in the CHF.

Thanks for the article. I purchased FXF in January purely out of speculation on continued dollar weakness, overdoing of the rise in the Euro and pressure on the Yen in the future when their exports come under pressure. Now the Euro hasn't cooled off (I still think it will), and my Yen thesis is more of a 12-month look, but I was pleased to see you mentioned Mr. Lydon note some of the good macro trends in Switzerland of which I was not aware.

2008 Apr 06 08:55 AM

[User 136503:]

I find it rather odd that this article was written without a reference to the Swiss Market Index. If you visit a site, say Yahoo, and pull up the chart of the Swiss Market Index, you will see that the Swiss Market is indeed, in very much a bear market when priced in Swiss Francs (and not in US Dollars as EWL does) and that a quick look at the chart would suggest steering clear of Swiss stocks until a firm bottom has been established. Here is the link to the chart:

finance.yahoo.com/q/bc...

With that note, I do agree with the author that the real rise in the EWL ETF fund is primarily due to the rise of the Swiss Franc. Imagine how this fund would have performed if the Swiss Market Index had been in a rally mode. With that said, an investor would have been much better off owning the Swiss Franc (Currency fund ticker is FXF) rather than buying EWL. The difference would have been a 2.5% profit on EWL (year-to-date) versus a 12% profit from just owning the Swiss Franc (year-to-date).

I also think it is worth mentioning that while our Federal Reserve Bank's Plunge Protection Team is buying Dow & S&P futures on the market (to manipulate our stock charts so that a double bottom pattern has been falsely formed), the Swiss Government has a strong reputation for not manipulating their indexes. A look at the Swiss Market Index will show that no double bottom occurred in this bear market and the trend remains firmly downward. Many traders I know now look to the Swiss Market Index to see where global trends are in the market as the US indexes are believed to be too manipulated by our central bank to be used for charting purposes.

2008 Apr 06 11:58 AM

[bruin532:]

Thats exactly what I thought when we had the biggest quartly open last Monday, the PPT at work.

2008 Apr 06 12:13 PM

[xander:]

swz a swiss closed end fund is safer than the etf since its price is at a substantial discount to its net asset value. this cef has a long history of trading on the nyse. i am hoping to get a double boost as the discount over time moves to a premium . its biggest holding is nestle .

2008 Apr 06 12:49 PM

[Seaferer20:]

An interesting view is the Swiss franc (FXF) vs the Euro (FXE). I suggest you take a look at Yahoo charting and compare them.

2008 Apr 06 04:47 PM