Portfolio and Performance Review The Swiss Helvetia Fund, Inc. - - PowerPoint PPT Presentation

Stefan n Frischk ischknec necht ht, Fund d Manager ger

Portfolio and Performance Review The Swiss Helvetia Fund, Inc.

June 19, 2018

Agenda

1

01

Performance

02

Portfolio positioning

03

Outlook

04

Conclusion

05

Case for Swiss equities

Performance

Performance

NAV and price performance in USD

3

Source: Schroders, Citi and JPM for fund performance; Bloomberg for index performance, May 31, 2018; year-to-date performance as at May 31, 2018. Performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

Performance in USD % YTD 2018 1 year 3 years 31.12.2014 – 31.01.2018 30.06.2014 – 31.05.2018 NAV (US GAAP) as per quarterly filings

• 5.82%
• 4.03%

4.44% 15.88% 6.87% Swiss Performance Index, SPI

• 6.51%
• 2.48%

3.72% 15.29% 8.31% Difference NAV as per quarterly filings +0.69%

• 1.55%

+0.72% +0.59%

• 1.44%

Performance in USD % YTD 2018 1 year 3 years 31.12.2014 – 31.05.2018 30.06.2014 – 31.05.2018 Share price SWZ

• 4.73%
• 1.90%

10.31% 21.69% 10.85% Swiss Performance Index, SPI

• 6.51%
• 2.48%

3.72%

15.29% 8.31% Difference +1.78% +0.58% +6.59% +6.40% +2.54%

Net asset value Share price

Since July 1, 2014: – Since Schroders took over as Fund adviser, relative performance is behind benchmark – However, after an initial transition period, i.e. since 31 Dec 2014, relative performance has been ahead

• f the benchmark Swiss Performance Index (SPI) by 0.59% after costs

– Private equity positions, inherited from the Fund’s prior investment adviser and since reduced, impacted absolute and relative performance by at least -2.2% since July 1, 20141 Last 12 months – Stock picking was slightly negative – Headwinds in 2017 from strong performance of expensive growth stocks that the Fund is underweight – After costs, performance was -1.55% behind benchmark Year to date – YTD relative performance after fees: +0.69% – Small & mid cap overweight was a tailwind (the Small & Mid Cap Index outperformed the SPI by 6.3%) – Stock picking was an additional positive

Performance comment

Driving factors for relative performance of NAV

4

1-2.2% is the negative absolute impact calculated as a percentage of beginning period NAV. As benchmark performance was positive, the relative impact is larger. Furthermore, this includes

a positive effect of action by the investment adviser taken after July 1, 2014. Source: Schroders, Citi and JPM for fund performance, Bloomberg for index performance, May 31, 2018; year-to-date performance as at May 31, 2018. Performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

Performance attribution – stock level

Top & Bottom 10 contributions to relative performance YTD 2018

5

Source: Schroders, FactSet, May 31, 2018; “over” means overweight; “under” means underweight compared to Swiss Performance Index; “zero” means no position.

Top ten stock contributions (USD) Bottom ten stock contributions (USD)

Total effect % Logitech (over) 0.6 Swatch (Reg.) (over) 0.6 Tecan (over) 0.4 Sonova (over) 0.4 Implenia (over) 0.3 Lindt & Spruengli (Reg.) (over) 0.3 Burckhardt Compression (over) 0.3 ABB (under) 0.2 Belimo (over) 0.1 Nestlé (under) 0.1 Total effect % Aryzta (over)

• 1.0

Zurich (under)

• 0.3

Swatch (Bearer) (under)

• 0.2

Partners Group (zero)

• 0.2

Temenos (zero)

• 0.1

Vifor Pharma (zero)

• 0.1

Sika (zero)

• 0.1

Kuros (over)

• 0.1

SGS (zero)

• 0.1

Lonza (under)

• 0.1

Portfolio positioning

Top ten holdings absolute Top relative weights

Portfolio positioning

As per May 31, 2018

7

Source: Schroders, JP Morgan, Bloomberg, May 31, 2018; “over” means overweight; “under” means underweight compared to Swiss Performance Index.

Name Absolute weight Novartis (under) 12.9% Nestlé (under) 12.8% Roche (under) 10.2% UBS (under) 4.0% Richemont (under) 3.4% Swatch (Reg.) (over) 3.1% Sonova (over) 3.1% Logitech (over) 3.0% Lindt & Sprungli (Reg.) (over) 3.0% Swiss Life (over) 2.8% Total 58.3% Name Relative weight % Swatch (Reg.) +2.7% Logitech +2.4% Tecan +2.4% Belimo +2.4% Sonova +2.4% Nestlé

• 5.8%

Swiss Re

• 2.1%

Zurich Insurance

• 2.1%

LafargeHolcim

• 1.9%

Roche

• 1.7%

Portfolio positioning

ICB classification

8

Source: Schroders, JP Morgan, Bloomberg, May 31, 2018.

0% 5% 10% 15% 20% 25% 30%

Private Equity Cash Health Care Providers Basic Resources Media Travel & Leisure Automobiles & Parts Utilities Medical Supplies Retail Medical Equipment Telecommunications Real Estate Biotechnology Financial Services Technology Chemicals Construction & Materials Personal & Household Goods Insurance Banks Industrial Goods & Services Food & Beverage Pharmaceuticals

SPI Swiss Helvetia Fund SWZ SPI

• Rel. %

23.1% 27.1%

• 4.0%

16.7% 20.5%

• 3.8%

11.6% 10.6% 1.0% 10.2% 10.2% 0.0% 6.2% 7.5%

• 1.3%

6.6% 5.5% 1.1% 5.9% 5.1% 0.8% 0.9% 2.2%

• 1.3%

3.0% 2.1% 0.9% 2.6% 2.0% 0.6% 0.7% 1.9%

• 1.2%

0.0% 1.4%

• 1.4%

1.1% 1.1% 0.0% 5.8% 1.0% 4.8% 0.0% 0.7%

• 0.7%

0.0% 0.6%

• 0.6%

0.4% 0.1% 0.3% 0.4% 0.1% 0.3% 0.0% 0.1%

• 0.1%

0.0% 0.1%

• 0.1%

0.0% 0.1%

• 0.1%

0.0% 0.0% 0.0% 2.9% 0.0% 2.9% 1.9% 0.0% 1.9%

Portfolio positioning

Changes in positioning Q1 2018 and March 31, 2018 – May 31, 2018

9

Source: Schroders, May 31, 2018.

New Positions

ABB Geberit Givaudan Sensirion Swatch (Bearer) Zurich Insurance

Increased Positions

Aryzta Baloise Logitech Swiss Life

Decreased Positions

Autoneum Belimo Burckhardt Compression Galenica Landis + Gyr Lindt & Sprüngli (Reg.) Nestlé Sunrise VAT Group

Sold Positions

Helvetia Zur Rose Zurich Insurance Richemont Lindt & Sprüngli (Reg.) Implenia Landis + Gyr Logitech

Swatch (Bearer) Galenica

Q1 2018 March 31, 2018 – May 31, 2018

CEVA Logistics Schindler (Bearer)

Risk measures (ex private equity) Portfolio turnover

Portfolio positioning

Key statistical measures

10

Source: Schroders, Charles River, Prism, May 31, 2018.

Swiss Helvetia Fund May 31, 2018 May 31, 2017 Tracking error 1.9% 2.1% Beta 0.94 0.95 Relative VaR (95%) 0.9% 1.0% Volatility 10.5% 10.7% Active share 38.6% 39.5% Swiss Helvetia Fund Turnover in % of AuM Q1 2018 6% Turnover in % of AuM YTD 2018 10%

Turnover calculation method: (lesser of buys or sells) / (average AuM)

Outlook

Investment outlook

Corporate earnings

12

Source: Bloomberg, May 31, 2018.

23 25 27 29 31 33 35 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017 MSCI All-Country World Index

Consensus EPS development – MSCI World

Investment outlook

Swiss franc development

13

Source: Swiss National Bank, December 2000 = 100, April 30, 2018.

100 105 110 115 120 125 130 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017 SNB Trade Weighted Overall Index - Real, CPI based

Trade weighted exchange rate index – real, CPI-based

Investment outlook

Global comparison of dividend yield versus government bond yield

14

Source: Schroders, Bloomberg, May 31, 2018.

• 3%
• 2%
• 1%

0% 1% 2% 3% 4% 5%

Brazil Shanghai USA Canada Italy Hong Kong Australia Japan France Spain Germany Netherlands UK Switzerland Dividend yield - 10 yr government bond yield Dividend yield

Investment outlook

Global comparison of earnings expectations

Source: Schroders, Bloomberg, May 31, 2018; all earnings converted into USD.

50 100 150 200 250 300 Dec 2005 Dec 2007 Dec 2009 Dec 2011 Dec 2013 Dec 2015 Dec 2017

Swiss small & mid cap earnings estimates (SPISMC Index) Swiss Earnings Estimates (SPI Index) US Earnings estimates (S&P 500) Eurozone Earnings Estimates (Euro Stoxx 50) UK Earnings Estimates (FTSE 100 Index)

15

Macroeconomic environment – Despite differing signals from the Citigroup Global Economic Surprise Index, which peaked around turn of the year, expectations for global GDP growth in 2018 & 2019 remained stable at around 3.75%1 – Earnings expectations also paint the picture of a solid economy – Threats, such as trade and geopolitical tensions, impacted stock markets more than real economy – Similarly, bond markets were shaken more by inflation fears than reported consumer price indices Market implications – We seem to be in the late stage of the economic cycle, i.e. “expansion” (after slowdown, recession, recovery) – As is typical for this stage, spare capacity has been almost filled, leading to bottlenecks and price increases – The cycle might be ended by policy mistakes (late, extreme monetary tightening; wrong fiscal policy) – Therefore, we expect higher volatility in the financial markets after very low volatility in 2017 – In a low interest rate environment, a small increase in bond yields has a large impact on price – Hence, we expect the bond market to continue to influence the equity market – However, as valuations have partially “reverted to the mean”, we see more upside in stock markets – Swiss equities have underperformed recently. We see no valid long-term concerns for this.

Investment outlook

2018: Is the end of this bull market near?

16

Source: Schroders, May 31, 2018, Bloomberg, Citigroup. 1Economic Forecasts polled by Bloomberg in function ECFC, as per May 31, 2018. Views expressed are the portfolio management team’s view and not necessarily a «house view». These views are subject to change.

Case for Swiss equities

– The Swiss stock market has a large proportion of global market leaders (not only among large

corporations), with competitive advantage

– High innovation rate – Global diversification helps in the current environment of synchronized growth – Generally strong ESG performance and absence of “sin stocks” – Swiss companies remained competitive despite the historic appreciation of the Swiss franc – The difference between dividend yield and 10 year government bond yield stands out

Why are Swiss equities attractive?

Source: Schroders. Views expressed are the portfolio management team’s view and not necessarily a «house view». These views are subject to change.

18

The World Economic Forum (WEF) has been looking into drivers of competitiveness and prosperity in 137

• economies. Amongst others, the following helps

explain the strong position of Switzerland:

 Innovation  Infrastructure  education  labor market efficiency  macroeconomic environment  business sophistication

The WEF crowned Switzerland for the 9th consecutive time in 2017-2018.

Switzerland offers an attractive business environment

19

Source: World Economic Forum, Global Competitiveness Report 2017-18, rank out of 137 economies. See also: http://www.prosperity.com/rankings: The Legatum Institute, a London based think tank published its annual global prosperity index, where Switzerland ranked number 4 based on 104 variables split into 9 sub indices (economic quality, business environment, governance, education, health, safety & security, personal freedom, social capital and natural environment).

Switzerland is an innovation leader

Source: Innovation Union Scoreboard 2017 (EU).

20

20 40 60 80 100 120 140 160 180 UA RO MK BG HR PL LV TR RS HU EL SK CY IT MT ES LT EE PT CZ SI EU 28 FR IL IE NO BE LU AT IS DE UK NL FI DK SE CH  Modest Innovators  Moderate Innovators  Innovation Followers  Innovation Leaders

Global leadership results in high profitability

Swiss company leadership transforms into margins

21

Source: Schroders, Bloomberg, December 31, 2017.

5 10 15 20 25 30 35 40 45 50 Switzerland (SPI) USA (S&P 500) Global (MSCI World) Europe (MSCI Europe) UK (FTSE 350) Japan (Topix) Gross Margin Operating Margin Net Profit Margin

Swiss companies are very international

Source: Morgan Stanley, June 13, 2017.

22

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Switzerland Europe US

Europe ex domestic APAC MEA LATAM

• N. America

Domestic Europe ex domestic APAC MEA LATAM

• N. America

Domestic Europe MEA APAC Domestic

Long term outperformance of Swiss equities

23

Source: Schroders, May 31, 2018. All data in USD. Views expressed are the portfolio management team’s view and not necessarily a «house view». These views are subject to change. Performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

Long-term reasons to invest Long-term historic outperformance due to:

– Many global leaders – Balanced geographical diversification – High innovation rate – Highly skilled and productive labour force – High profit margins – Political system (stability, taxes, labour law) – Quality infrastructure – Low debt (at companies and government) – Strong CHF seen as asset, not disadvantage

• 100%

400% 900% 1400% 1900%

Cumulative stock market return

Swiss Performance Index (SPI) MSCI World All Country Total Return Index

• 500%

0% 500% 1000% 1500%

Performance difference SPI - MSCI World All Countries TR

2.6% p.a. in USD 10.0% p.a. in USD 7.4% p.a. in USD

0.5 1 2 4 Dec 1975 Dec 1977 Dec 1979 Dec 1981 Dec 1983 Dec 1985 Dec 1987 Dec 1989 Dec 1991 Dec 1993 Dec 1995 Dec 1997 Dec 1999 Dec 2001 Dec 2003 Dec 2005 Dec 2007 Dec 2009 Dec 2011 Dec 2013 Dec 2015 Dec 2017 USDCHF EURCHF

– Swiss companies are used to an appreciating Swiss franc.

– High efficiency and strong focus on productivity gains – High innovation rate – Market leaders in their respective niches – Global production footprint provides a substantial natural hedge – Solid balance sheets

– Sharp moves in exchanges rate such as happened in 2011 and 2015 had short term impacts but were

successfully absorbed after 1-2 years in terms of margin recovery

CHF appreciation is nothing new

Source: Schroders, Bloomberg, May 31, 2018. Views expressed are the portfolio management team’s view and not necessarily a «house view». These views are subject to change.

24

Swiss Equity Market

Attractive risk / return profile compared to Europe

25

Source: Bloomberg, May 31, 2018, all data in USD. Performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

• 200

300 800 1300 1800 2300 Switzerland (SPI TR) Europe (MSCI European Monetary Union TR) USA (S&P500 TR)

10.1% p.a. / Volatility 17.7% 7.0% p.a. / Volatility 20.2% 10.7% p.a. / Volatility 16.0%

Swiss Equity Market

World’s Top 10 Countries by Market Cap

26

Source: Bloomberg, Truewealth Publishing, August 31, 2017.

Rank Market Mkt Cap (US$ trillion) 1 USA 23.8 2 China 6.6 3 Japan 5.2 4 Hong Kong 4.1 5 UK 3.0 6 Canada 1.9 7 France 1.9 8 Germany 1.8 9 India 1.7 10 Switzerland 1.4 Top 10 51.4 World 65.6

Swiss Equity Market

High concentration in Swiss Performance Index

27

Source: Bloomberg, Schroders, May 31, 2018.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1 3 5 7 9 11 13 15 17 19 21

Cumulative weight of the x largest constituents Constituents ranked in descending weight

• rder

SPI Swiss Helvetia Fund 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

Cumulative weight of the x largest constituents Constituents ranked in descending weight

• rder

Swiss Performance Index (SPI) SPI compared to SWZ

– The Swiss Performance Index’s composition is inefficient and highly concentrated – The Swiss Helvetia Fund takes advantage of diversification benefits

Total return: The Swiss Helvetia Fund, Inc. 198.4% 5.8% p.a. (since year end 1998) ETF on Swiss stocks 162.7% 5.1% “ MSCI Europe ex Switzerland 131.1% 4.4% “

Performance of The Swiss Helvetia Fund

Compared to ETF and European Index since introduction of the Euro

28

Source: Schroders, Bloomberg May 31, 2018. Performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

• 50%

0% 50% 100% 150% 200% 250% 01/12/1998 01/12/1999 01/12/2000 01/12/2001 01/12/2002 01/12/2003 01/12/2004 01/12/2005 01/12/2006 01/12/2007 01/12/2008 01/12/2009 01/12/2010 01/12/2011 01/12/2012 01/12/2013 01/12/2014 01/12/2015 01/12/2016 01/12/2017 The Swiss Helvetia Fund, Inc. (SWZ US) Swiss ETF (iShares MSCI Switzerland Capped ETF; EWL US) MSCI Europe (ex Switzerland) Index