Investors broadly support Swiss champions

It has been almost a month since the Swiss central bank shocked the markets with its overt policy to cap its currency appreciation in a bid to protect national export champions and stave off recession. Central bank President, Philipp Hildebrand has recently gone on record to reiterate that policy makers are ready to use “all measures” to protect their franc cap, Bloomberg reports (click here). With exports accounting for over a third of Swiss GDP, we use securities lending flow to assess how investors on both the long and short side of the market have positioned themselves in Swiss companies over the last month. Stocks featured include: Oerlikon (VTX:OERL), Clariant (VTX:CLN), Actelion (VTX:ATLN) and Swatch Group (VTX:UHR).

Most shorted

Average short interest across 87 large cap Swiss companies with market cap greater than USD one billion is at 2.7%. However, the top 10 most shorted stocks have not changed much since we last wrote back in July click here. As evident from the table below, Healthcare stocks still dominate the list and Technology specialists Meyer Burger (SWF:MBTN) and Logitech (VTX:LOGN) still see the most short interest.

Industrial conglomerate, Oerlikon is a new entry at number two on the list. The company has exposure to a range of sectors including textiles, propulsion and solar, and has seen short interest rise 53% over the past month to reach 27% of the total shares. Clariant is another new entry, having seen a 25% surge in short interest to its current 9.76%.

But short have covered

We have screened the 87 large cap companies to identify those which have seen the largest fall in short interest since the Swiss Government announced its activist currency policy. In September, short interest fell 24% amongst the top 10 stocks that have seen the greatest amount of short covering to a current average of 2.35%. Companies within the Materials sectors account for almost s a third of the top 10 stocks including Givaudan (VTX:GIVN), Syngenta (VTX:SYNN) and Sika (SWF:SIK), which have seen short interest decline by 36%, 20% and 19% respectively.

Pharma company Actelion is the stand out name. Elliot Advisors reduced its holdings in this name after failing in its push for an investigation, board changes and possible share. Since then, short interest has declined by 70% over the month to 1.45%, as reported by Bloomberg (click here).

It is interesting to note that holdings of institutional investors who lend exceed 20% in all but one of 10 companies that have seen the greatest amount of short covering.

Institutional investor buy-in

We also screened the same group of large cap Swiss companies to focus on those stocks that have witnessed the greatest increase in holdings by institutional investors who lend their shares (with a minimum threshold set at 5% of the total shares). The average ownership amongst this group of long only investors is 16%, yet the average across the top 10 stocks that have seen the greatest increase in institutional ownership is 18%. Materials stocks EMS Chemie Holding (VTX:EMSN) and Clariant have witnessed the greatest increases over the past month (25% and 18% respectively), but these long only investors remain relatively underweight the average in EMS Chemie, given they only own 5% of the company’s shares. Clariant splits investor sentiment, with short interest having surged in the past month (as mentioned above), while institutional investors have increased their holdings by almost a fifth to 26% of the company.

The Swatch Group is another name subject to positive sentiment from institutional investors. They now own 32% of the company, up 9% over the month. This group has also increased their stake by 12% in Capital Goods group, Sulzer, raising their total holdings to 23% of the company.

Our Portfolio Dashboard provides a more recent view, which echoes investor sentiment over the past week. Meyer Burger and Logitech (mentioned above) rank amongst the stocks at risk of a short squeeze. Xmtch, Partners Group Holding, Nobel Biocare Holding and Clariant stand out, showing positive investor sentiment, with rising institutional ownership and declining short interest.

But they sell Government bonds

On a final note, when looking at Swiss Government bonds, it is interesting to note that institutional investors have more than halved their holdings over the third quarter from USD 77.7 billion to USD 33.8 billion – the lowest level for over a year. Is this reaction to the Swiss Government’s currency intervention?

Bottom line

While the jury is out on assessing the effectiveness of moves by the Swiss Government, institutional investors have been increasing their stakes in a number of Swiss companies, while shorts have covered more aggressively. That said, these macro policies have not deterred short sellers in their views towards those companies that have seen long term negative sentiment.