The CurrencyShares Swiss Franc Trust (FXF) has traded modestly higher this year and that has been enough to drag the iShares MSCI Switzerland Capped ETF (EWL) to a year-to-date loss of nearly 4%, but there are signs the biggest Switzerland exchange trade fund (ETF) is ready to reverse higher.
Switzerland, a nation with a reputation for autonomy and often docile financial markets, roiled global markets last year when the Swiss National Bank scrapped the franc’s euro peg.
Additionally, Switzerland is desperate to see the Fed normalize its interest rate policy. In fact, a UBS economist told the Financial Times that the Swiss National Bank, the Fed’s Swiss counterpart, prays every night that the Fed will hurry up and boost rates.
Related: Be Careful With Switzerland ETFs
“Switzerland’s ‘AAA’ rating reflects its track record of prudent economic and fiscal policies, a diversified and wealthy economy, and high levels of human development. Switzerland surpasses its ‘AAA’ peers on most key indicators. GDP per capita is 1.5x the ‘AAA’ median. General government gross debt is low (34.4 percent of GDP estimated for 2015) and the government runs a small budget surplus. An estimated net external creditor position of 159 percent of GDP in 2015 is underpinned by a history of current account surpluses and the Swiss franc’s status as a global reserve currency,” said Fitch Ratings in a recent note.
Swiss stocks and EWL would be prime beneficiaries of franc weakness against as many developed currencies as possible. Nearly all of EWL’s largest holdings generate the bulk of their revenue in markets outside of Switzerland.
Trending on ETF Trends
International investors have traditionally turned to these safe-haven currencies during times of market turmoil because of the countries’ historically low interest rates, along with their stable government and financial systems.
The stronger franc will weigh on exporters like Nestle, along with other small- and mid-sized companies with factories in Switzerland where workers earn some of the highest wages in Europe.
Related: A Strong Franc Hampers Swiss ETFs
“Taking a look at the chart, you’ll see that the bulls have recently sent the price above the resistance of a key long-term descending trendline. The close above the trendline in early April was an early signal of a major trend reversal and the recent pullback toward the support, and subsequent bounce suggests that the bulls are indeed taking control of the momentum. Active traders will likely keep a bullish outlook on the Swiss financial markets,” according to Investopedia.
For more news and strategy on Switzerland ETF market, visit our Switzerland category .
iShares MSCI Switzerland Capped ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.