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Dividends are a vital source of returns, especially in times of volatility. The ۶Ƶ ETF MSCI Switzerland IMI Dividend ESG combines high-quality Swiss dividend stocks with sustainability aspects.
After the economy and markets performed better than expected in 2023, economic growth is likely to continue in 2024, albeit at a slower pace than in the past year.1 The markets are expected to become more volatile in light of both the geopolitical situation and the possibility that central banks will cut interest rates. As a result, investors are advised to pay particular attention to quality and defensive characteristics when selecting their investments. Selecting companies that promise steady growth is the key to success.
Defensive stocks, high quality
Swiss dividend stocks are expected to perform particularly well against an uncertain economic backdrop. Firstly, the Swiss equity market is fairly defensive by international standards, thanks in large part to the fact that companies from the healthcare and consumer staples sectors are well represented in Swiss equity indices.
Secondly, Swiss companies have plenty to offer when it comes to quality. They generally have relatively moderate levels of debt, giving them the potential to generate profits even in a weaker economic environment. Another indication of the solid quality of Swiss companies is their ability to pay stable dividends over a longer period of time, with dividend yields remaining attractive over the past ten years despite significant share price rises in the Swiss equity market.
Dividend yields provide greater stability
Dividend yields account for more than half of the overall return on investment in Swiss equities. The Swiss Performance Index (SPI), for example, has risen by around 60% since January 2003. If we add dividend payments to this, the increase reaches almost 200% (see chart).
Yet dividends have other defensive characteristics, too. They exhibit lower volatility than corporate profits, as demonstrated by the fact that the latter were much more acutely affected by the 2008 global financial crisis. During this period, the net profits of all companies in the Swiss Market Index (SMI) fell by 68% while accumulated dividends declined by just 22%. It can be assumed that these companies believe it is important to keep their shareholders happy with cash returns even in challenging times. Regular dividend payments can also be seen as a sign of sound corporate governance.
Dividend stars combined with sustainability
Yet simply selecting the equities with the highest dividend yields would be too simplistic. In the longer term, it is worth backing companies with a focus on sustainability, growth and returns that have pursued a consistent dividend policy in the past. A sustainable, indexed approach to Swiss dividend stocks has the potential to generate 30% higher dividend yields with comparatively low risk2.
The topic of sustainability has become increasingly urgent in recent years. Incorporating environmental, social and governance (ESG) factors into investments is also advisable from a returns perspective, as companies that take effective action to reduce emissions and environmental damage as well as improving social aspects and governance are likely to prove to be responsible investments in the long term. Compared to “traditional” benchmarks, sustainable companies have the advantage of being less vulnerable to potential ESG risks such as stricter environmental legislation.
The ۶Ƶ ETF MSCI Switzerland IMI Dividend ESG invests in companies listed on the Swiss equity markets that have sustainable long-term dividend yields and are striving to systematically integrate ESG standards. The aim is to reduce the fund's carbon footprint by 30% and improve its weighted ESG score by 10% compared to the parent index (MSCI Switzerland IMI Index)3, thereby granting investors efficient access to stable returns while at the same time enabling them to invest sustainably.