UBS Asset Manager Says He Shielded Some Funds Before Franc MoveShane Strowmatt and Jeffrey Vögeli
For three years, the Swiss franc was locked against the euro under the central bank’s cap, with no end in sight. UBS Group AG’s Gregor Hirt last month sensed something was about to change.
UBS, Switzerland’s largest asset manager, reduced exposure to euros for Swiss multi-asset pension funds that month because of a weak euro-zone economy and more discussion in Switzerland about the franc’s cap on the euro, Hirt said in a telephone interview. Yesterday, the Swiss National Bank surprised the world by abolishing the cap, sending markets into a tailspin.
“We saw it coming,” said Hirt, chief investment officer for Europe and Switzerland at UBS’s global investment solutions unit. His choice to reduce holdings minimized losses on about 15 billion francs ($17.4 billion) of funds he oversees, according to Hirt.
“In one day, the average Swiss pension fund lost the expected return for about half a year,” he said, quantifying the likely effects of yesterday’s move on funds that weren’t prepared. He said he outperformed competitors on the day, without providing details, and added he’s outperformed “most if not all competitors,” year to date.
The SNB move roiled markets, pushing the Swiss currency to a record against the euro, rising as much as 41 percent. The exchange rate had been edging closer toward the limit of 1.20 francs imposed by the SNB in 2011 throughout last year.
Hirt’s decision to reduce euro exposure came as the SNB explained how negative interest rates could be used as an additional measure to keep down the franc. About the same time the SNB was forced to resume purchases of foreign currencies for the first time in two years to keep the franc below the cap.
The central bank yesterday also pushed interest rates deeper to negative territory after it moved them there for the first me since the 1970s less than a month ago.
Short-term, Hirt expects continued volatility of the franc.
“The move was so fast yesterday that a lot of stop losses were not activated,” he said.
Over the next three to six months, he expects volatility of the franc to stabilize and the euro-franc rate to settle at around one euro to 1.10 francs.
Yesterday, the Swiss Market Index fell 8.7 percent after losing as much as 14 percent earlier in the day, and dropped another 6 percent today. Hirt recommends clients use the opportunity to pick Swiss stocks with little dependence on the franc’s exchange rate.
“The Swiss equity market has just been sold out and this is usually a great time to look at stocks.”