Equity: Switzerland - Total Market
Investors seeking broad exposure to the Swiss equity market have two very different choices. The first is EWL, a plain-vanilla fund that selects the largest companies in the Swiss equity
“exposure to the Swiss equity market has 2 very different choices” market and weights them by market capitalization. EWL is the more established of the two funds, with over 95% of the segment's assets. In comparison, FSZ offers drastically different exposure: It selects and ranks the top 40 securities from the S&P Switzerland BMI universe with the most appealing growth or value factors then weights them equally within five quintiles.
FSZ's tiered equal-weighting scheme tilts it substantially away from the market-cap-weighted EWL (and our benchmark). Compared with the neutral market and its only competitor, FSZ overweights mid- and small-caps, with a weighted average market cap less than 1/10 the benchmark's. EWL and FSZ also have very different sector exposures. EWL has thrice the health care and consumer non-cyclicals exposure as FSZ. Instead, FSZ heavily overweights financials and industrials.
Both funds charge fairly high expense ratios, but FSZ's 0.80% dwarfs EWL's 0.51%. Meanwhile, FSZ is challenging to trade at the block level whereas EWL is very liquid all around. In all, EWL's solid coverage, deep liquidity and sound management make it the clear Analyst Pick between the two funds. Investors need to be big believers in FSZ's quant-based strategy to justify its higher fee and illiquidity. (Insight updated 11/22/17)
ETF.com Efficiency Insight
EWL and FSZ are separated primarily in Efficiency by their expense ratios: EWL charges 0.51%, while FSZ nails investors with a hefty 0.80% fee. FSZ is likely to have more turnover than the
“FSZ has tracked with a disturbing amount of variability” cap-weighted EWL as well, adding to embedded trading costs. FSZ has also tracked with a disturbing amount of variability, where EWL has been fairly consistent.
On the tax front, EWL made forced capital gains distributions for a few years over a decade ago, but has been able to avoid them ever since. FSZ has not distributed any capital gains in its short life.
While both funds have stable asset bases, sufficient to avoid any undue closure risk, EWL is more than an order of magnitude larger than FSZ. (Insight updated 11/22/17)
ETF.com Tradability Insight
EWL and FSZ are a mile apart in on-screen liquidity. EWL trades over $15 million on most days, with a tight 0.04% average spread ($0.01). In comparison, FSZ trades roughly $500K daily and
“EWL and FSZ are a mile apart in on-screen liquidity” bid/ask spreads have averaged 0.17%, making limit orders a must.
The difference is even more apparent at the block level. FSZ's underlying basket is illiquid enough that creates and redeems will significantly move the market, and its weaker secondary liquidity means that market makers will have a harder time unloading their hedges. EWL, in contrast, has a highly liquid basket which earns it a perfect block liquidity score.
iNav will be most valuable as a reference point for setting limit orders early in the US morning when each fund's underlying securities are trading in Switzerland at the same time at the ETFs are trading in the US. (Insight updated 11/22/17)
ETF.com Fit Insight
EWL and FSZ have wildly different portfolios.
EWL holds a broad, comprehensive basket of Swiss securities. Like the Swiss market itself, it is highly concentrated: Its top three
“EWL has significant exposure to local Swiss banks and insurance companies” holdings represent nearly 50% of its portfolio, and the Swiss giant Nestle accounts for 16% alone. The fund is heavily invested in health care, financial and consumer stocks.
FSZ's quant-based algorithm is currently pointing the fund toward mid- and small-caps: Its weighted average market cap is just $14 billion, compared with $131 billion for EWL. The two also make very different sector bets: FSZ has twice as much basic materials exposure as EWL. It also has significant exposure to local Swiss banks and insurance companies. A fan would argue that FSZ gives exposure to domestic Switzerland—the Swiss companies that Swiss people buy things from—whereas EWL holds mostly multinationals.
Ultimately, the two funds approach the Swiss market from two very different angles. If neutral exposure is what you want, choose EWL. If, instead, you like the idea of a more diverse quant model that tries to beat the Swiss market, FSZ may be the fund for you. (Insight updated 11/22/17)