Just because investors haven’t tested the Swiss National Bank’s franc shield recently, doesn’t mean its officials have little to do.
As President Thomas Jordan’s staff deploy a pile of money built up during 2 1/2 years of currency interventions, a regulatory filing last week provides a glimpse on just how busy they have been managing 439 billion francs ($493 billion) of reserves. In the last quarter, they tweaked most of their U.S. stocks, trimming stakes in at least three of the biggest.
According to the document published on May 6, officials cut the number of shares in Exxon Mobil Corp. by nearly 8 percent, those in Apple Inc. by a 10th and its Johnson & Johnson stock by more than 5 percent. The activity in its U.S. equity portfolio, worth more than $25 billion, underscores how Jordan balances his role as central banker with that of the guardian of a fund whose size would put it among the largest European asset managers.
“To a certain extent, they’re a pioneer among global central banks,” said Gary Smith, head of sovereign wealth funds and official institutions for Barings Asset Management in London. “Those central banks that have diversified into equities recently have done very well. That can only empower them.”
While the SNB hasn’t intervened to defend the franc cap since September 2012, it increased the proportion of equities it holds early last year. At the end of March, 15 percent of its foreign-exchange reserves were in stocks, with the majority in highly rated government bonds.
SNB Stock Picks
The investment strategy of Jordan’s officials isn’t too clear from the U.S. filings. The Zurich-based central bank doesn’t itself disclose stakes in individual companies, saying only that it replicates broad-based indexes and excludes some stocks on ethical grounds.
SNB spokesman Walter Meier declined to comment on the filings, which it is required to make to the Securities and Exchange Commission.
The central bank held shares in almost 2,500 U.S.-listed companies at the end of the first quarter. In that time, the Standard & Poor’s 500 Index gained 1.3 percent, its fifth consecutive quarterly advance. Exxon, in which the SNB had 5.3 million shares on March 31, declined 3.5 percent in that period, Apple fell 4.3 percent, and Johnson & Johnson climbed 7.3 percent.
Exxon fell 0.3 percent to $100.52 at 9:33 a.m. in New York today, while Johnson & Johnson was little changed at $100.71 and Apple climbed 0.2 percent to $589.86.
An April 2013 survey of 60 central banks by Central Banking Publications and Royal Bank of Scotland Group Plc found that 23 percent either owned shares or planned to buy them.
Even so, the U.S. Federal Reserve isn’t allowed to purchase stocks, and the European Central Bank, the Bank of England, and the Bank of Canada don’t hold any equities in their foreign-exchange reserves. The Bank of Japan invests in exchange-traded funds.
The SNB holds all equity stakes as a passive investor, and Board Member Fritz Zurbruegg stressed in March that the currency reserves are designed to serve the objectives of monetary policy. Because of this, hedging the foreign-currency exposure isn’t possible, he said.
“The SNB is not concerned with maximizing return for its own sake,” he said in a March 27 speech. “Our goal is to ensure that the purchasing power of the currency reserves at least is maintained over time.”
The Swiss central bank doesn’t exercise voting rights, according to Zurbruegg. He said the SNB bought equities as a means of mitigating risk, because their potential return was better than those of the bonds issued by major advanced economies.
Smith at Barings agrees, saying the SNB’s expansion into stocks made sense because the relative risk of holding them had decreased due to low interest rates on fixed-income products.
“I see this trend toward diversification continuing for as long as reserve levels remain high and as long as interest rates on government bonds remain low,” he said in a telephone interview, speaking about central banks generally.
Judging by the size of its currency reserves, the SNB would have ranked among the 15 largest European asset managers at the end of 2012, behind Allianz SE, AXA SA and UBS AG and ahead of Credit Suisse Group AG and Aviva Plc, based on a study by Towers Watson published last year.