Swiss equities: selecting carefully

Our Swiss Equities Team analyzes around 140 Swiss companies every day. As stock pickers, we conduct a thorough, bottom-up analysis of each individual company. We have high standards regarding the quality of the Swiss companies in which we invest – starting with the global market position of the company under review, including its financial strength, long-term strategy, innovative strength, and corporate culture, as well as its social and environmental footprint. In all these areas, we set the bar at the highest standard.

Global market leadership thanks to Swiss quality

Around 30 years ago, it was mainly large Swiss financial and pharmaceutical companies that succeeded on the international stage. Since then, however, more and more small to medium-sized Swiss companies from a wide range of sectors have also blossomed into global market leaders. Their current number is impressive for such a small country as Switzerland. The explanation for this success is obvious: Swiss quality is highly desired worldwide.

One remarkable example of a Swiss company that has achieved this success with great distinction and has consistently met all our quality criteria for many years is Sika, a specialty chemicals company. Sika develops adhesives, sealing systems and solutions for bonding a wide variety of materials, and serves the manufacturing sector, primarily the automotive and construction industries. The company was founded as a family business around 140 years ago. It is unclear whether the company name combines the initial letters of the first names of the founder Kaspar Winkler and his wife Sibylle, or those of silicon and calcium, referring to Sika’s first flagship product, a sealing mortar. Like this product, the abbreviation has stood the test of time – as has the company itself, which now employs 34,000 people in 103 countries across five continents. We have long been impressed by its financial strength and the expertise of its management team. That’s why we have retained Sika as a core holding in our Swiss equity portfolios for many years.

Performance is our top priority for these core holdings. And Sika excels here, too. Within the Swiss Market Index (SMI), which tracks the 20 largest companies listed on the Swiss stock exchange, Sika has consistently outperformed all other companies over the past two decades. The entire Swiss equity market – represented by the Swiss Performance Index (SPI) – cannot even come close to matching its impressive gains over the same period.

Regular meetings and inspections are a must

We consistently apply the same principles for all of the Swiss companies that we closely monitor. These principles include diligently maintaining a regular dialog with the respective management and, once we have invested, also with representatives of the associated board of directors. For our assessment of a company’s quality, this is just as crucial as visiting the production facilities in person.

At Sika, our discussions with the CEO, CFO, or other members of the executive management have always taken place on an equal footing. In addition, we have had the opportunity to visit Sika’s plants in Switzerland, other European countries, the US, and Asia. During our conversations with employees at these locations, it became clear how proud they are to work for Sika and how well they understand not only their own area of responsibility, but also the big picture and how their individual role fits into it. This is by no means a given for a company of this size with 34,000 employees, which has grown over the years not only organically but also through numerous acquisitions.

Innovation brings success

Most Swiss companies that have attained global market leadership have grown primarily thanks to their impressive innovative strength. At Sika, for example, this remains guided by the principle of consistently creating added value for customers. Sika’s CEO, Thomas Hasler, personally gave us a vivid example of how innovation continuously leads to new developments. He assumed his current position in 2021, but had joined the company 35 years earlier, initially as a chemist. About six years later, working as a development engineer closely involved with customers, he contributed to the success of his first customer – an innovative automotive manufacturer with a high level of engineering expertise that was testing new Sika adhesives for its flagship model. The result: innovation squared.

Soaring thanks to flexibility

Thomas Hasler told us that from the very beginning at the company, he enjoyed trust, was able to contribute many ideas, challenge established practices, and make a real difference. Encouraged by this, he soon took on greater responsibility. Later, he moved into the commercial side of the business and successfully led Sika’s automotive business in Europe. In 2005, he was tasked with reviving Sika’s US sales, which had been hit hard by the automotive industry crisis. Within four years, he managed a turnaround by the US business back to half its size. When the automotive industry recovered, the business flourished. The company’s defining strength is its ability to adapt during a crisis to benefit fully from the subsequent boom.

The CEO’s career path, as briefly outlined here, illustrates another facet of Sika that we consider an excellent hallmark of a successful company: Its management recognizes and fosters talented employees within its workforce in order to retain them for the long term. It is no coincidence that Sika’s entire executive management team consists of long-serving employees who previously, for example, led a division or a region. In our opinion, this well-coordinated team is part of an exemplary corporate culture, which we can confidently say is truly embraced and lived by everyone at Sika. This was clearly evident when we observed the employees there at their work. No company can merely fake this for its shareholders or portray it convincingly to investors during a capital markets day event.

Acting in concert, without borders

Swiss companies operating globally, with branches across the world yet a corporate culture that transcends borders, also score highly on our quality scale. The secret to Sika’s success, according to its CEO, lies in a people-oriented approach built on respect and tolerance. For him, it is essential that the entire workforce pursues the company’s vision together: delivering performance for customers, with innovation serving as a means to that end. At the same time, employees must feel that they are respected, empowered, and given opportunities for professional development. At Sika, each country operates autonomously, but the local employees receive support when needed, enabling them to leverage local opportunities and achieve success.

Greater stability through more diversification

Swiss companies with operations across multiple countries are generally well established, and thus better equipped to handle challenges such as the new US import tariffs than smaller Swiss companies that produce solely for the domestic market. A more diversified foundation is also advantageous for navigating the changes currently reshaping the global order. The emergence of new economic blocs, much like globalization before, means new trade opportunities will appear, which companies already established in those regions will probably be better positioned to seize. Sika, for example, has maintained close ties with China and Japan for some time and has closely followed the development of trade in these markets.

In the past, many high-quality Swiss companies that were sufficiently innovative and agile have demonstrated their ability to overcome geopolitical and economic difficulties. In our view, those companies that also maintain a sufficiently diversified network of locations have a good chance of maintaining their leading market positions in the global competition of the future.

References to portfolio holdings and other companies are for illustrative purposes only as at the date of publication and serve to explain the topic at hand in more detail. The information contained herein is neither research nor a recommendation to buy, hold or sell securities, nor should any assumptions be made regarding the current or future profitability or performance of any mentioned company or related security. There is no guarantee that the securities discussed herein will still be part of the strategy when this publication is received, or that sold securities have not been repurchased in the meantime. The securities discussed may represent only a certain percentage of the portfolio’s holdings. Further information can be found under “Related Funds”.

All forecasts or forward-looking statements regarding future events or the financial performance of countries, markets and/or investments are based on numerous estimates and assumptions. This information should not be understood as an indication that Vontobel considers these forecasts to be reliable predictions of future events, nor should it be relied upon as such. Actual events or results may differ materially. Undue reliance therefore should not be placed on such forward-looking information.