Swiss National Bank's Investment Strategy and the Swiss Economy

Swiss National Bank's Investment Strategy and the Swiss Economy

The Swiss National Bank (SNB) holds approximately $167 billion in equities, primarily US tech stocks like NVIDIA and Apple, to diversify reserves and manage the strong Swiss franc amid persistent low inflation and negative interest rates. This unique approach among central banks supports export competitiveness through innovation despite currency strength. The Swiss economy remains resilient with 1.2% GDP growth in 2025, outperforming peers, but faces challenges from US tariffs and deflation risks. Over the past decade, SNB's adaptive strategy has balanced interventions and rate adjustments. US tariffs target trade surpluses, aiming to reduce deficits and gain concessions.

SNB's Stock Holdings and Largest Positions

The SNB's equity portfolio stands at $167 billion as of Q2 2025, concentrated in US stocks across over 2,300 positions, with tech giants dominating nearly 25%. Top holdings include NVIDIA (~7.8%), Apple (~5.8%), and Microsoft (~5.4%). This passive, index-replicating strategy ensures liquidity for monetary operations.

As Arturo Bris, professor of finance at IMD Business School, notes: “Switzerland doesn’t need a sovereign wealth fund when we have the SNB. But they don’t want to take any role in these companies – it is purely a tool to manage the currency.”

Stefan Gerlach, chief economist at EFG Bank in Zurich, adds: “You can see why the SNB gets compared to a sovereign wealth fund – it owns so much and has such a large balance sheet. But unlike a sovereign fund, which seeks returns through active investment, the SNB has a different mindset.”

Christel Rendu de Lint, co-chief executive of investment firm Vontobel, explains: “The SNB does not invest in systemically important banks globally to avoid any conflict of interest it could be seen as favouring them.”

Reasons for SNB's Equity Investments

The SNB invests in stocks to diversify massive foreign reserves from trade surpluses, generating returns to offset franc appreciation risks while maintaining high liquidity.

Karsten Junius, chief economist at Safra Sarasin, states: “While the US Federal Reserve and ECB use newly created money to buy their own government bonds – reducing interest rates and weakening their currencies – the SNB cannot do the same... Switzerland’s bond market is too small for its huge balance sheet.”

Junius further warns: “Outsourcing would reduce liquidity. The assets wouldn’t be available for monetary policy use as quickly or discreetly.”

Gerlach observes: “Such losses have triggered periodic calls by analysts and politicians for the SNB to rethink how it invests its reserves... Some have proposed outsourcing a portion to external managers to generate higher returns.”

Comparison with Other Central Banks

The SNB's large-scale equity investments are unique; the Bank of Japan holds ETFs for policy reasons, while the ECB and Fed stick to bonds for neutrality.

Junius remarks: “It simply isn’t a good idea [to change that],” emphasizing the SNB's tailored approach.

Impacts of Low Inflation and Negative Rates on Currency and Economy

Persistent low inflation (0.1-0.2% in 2025) and potential negative rates strengthen the franc as a safe haven, boosting imports but hurting exports and growth.

Charlotte de Montpellier, ING economist, predicts: “I think that rates will indeed go back into negative territory.”

Rudolf Minsch, chief economist at economiesuisse, cautions: “So the central bank has a bit more leeway to wait before going into negative rates.”

Martin Schlegel, SNB chairman, highlights: “We are aware that negative interest rates can have undesirable side effects, for example for savers and pension funds.”

De Montpellier adds: “A strong Swiss franc has significantly reduced the cost of imported goods ... Given that imports make up 23% of the CPI basket, this has a notable impact on overall inflation in Switzerland.”

Lily Fang, professor of finance at INSEAD, notes: “The Swiss authorities are clearly concerned, because … it's a small, open economy that relies on international trade, and the U.S. in particular is their single most important trading partner beyond the EU bloc.”

Current State of the Swiss Economy and Historical Comparisons

Switzerland's economy is stable with low unemployment (2.5-3%) and GDP growth at 1.2% in 2025, better than 2015's volatility but similar to 2023's subdued recovery.

Claude Maurer, BAK’s chief economist, warns: “That would require a more pronounced deterioration of the economy.”

UBS economists state: “Over the next few quarters, US customs duties are likely to have a negative impact on exports, notably due to the offsetting of anticipated effects, and GDP is therefore likely to stagnate.”

SNB's Strategy Over the Past 10 Years

From abandoning the euro peg in 2015 to rate hikes in 2022 and easing in 2025, the SNB has focused on flexible targeting and interventions to maintain stability.

Karsten Junius (J.Safra Sarasin) reflects: "The SNB is probably asking, do we want to fight this? Can they do anything against the moderating of the global business cycle?"

Stephen Jen and Joana Freire, analysts at Eurizon SLJ: "Risks to the franc may be skewed to the strong side, i.e., it will strengthen again in risk-off but may not weaken that much in risk-on."

Swiss Export Competitiveness Amid Strong Currency

Switzerland maintains competitiveness through high-value innovation, hedging, and premium branding, offsetting franc strength.

Fang observes: “Switzerland has already gone ahead and lowered rates ahead of the EU. I think it is very likely to go to zero and even negative.”

De Montpellier notes: “The latest decline is largely driven by external factors.”

US Tariffs on Switzerland: Reasons and Expected Gains

The US imposed 39% tariffs on Swiss exports due to trade deficits, seeking reciprocity and revenue (~$5-10B annually).

Torsten Sauter, head of Swiss equity research at Kepler Cheuvreux: "Switzerland is in a tough spot but not without options."

Adrian Prettejohn, Europe economist at Capital Economics: "We estimate that the current tariff rate of 39%, but with exemptions for pharmaceutical products, would reduce GDP by around 0.6% in the medium term."

Alexander Rathke, head of Swiss economic forecasting at KOF: "For many products it would not be worth exporting any more."

Kamal Sharma, G10 FX strategist at Bank of America: "The more direct response that the SNB could take is to say, look, we need to offset this by engineering some currency depreciation, and what that does is that it brings intervention back into play."

SECO states: "Uncertainty regarding international trade and economic policy remains high and is shaping the outlook for both the global and Swiss economies."

Conclusion

The SNB's innovative equity strategy has effectively navigated Switzerland's unique economic landscape, balancing a strong franc with export resilience through diversification and targeted interventions. Over the decade, adaptive policies have mitigated deflationary pressures and global shocks, fostering stability amid low inflation and negative rates. However, persistent currency strength and US tariffs pose ongoing risks, potentially curbing growth to 1.2% in 2025 and raising unemployment slightly. Experts like de Montpellier warn of deeper negative rates if franc appreciation intensifies, while Sauter highlights negotiation leverage in pharma and defense. Compared to two years ago, the economy shows similar subdued growth but added trade vulnerabilities; versus 2015, it's more stable with lower volatility. Switzerland's competitiveness endures via innovation, but sustained US pressures could erode surpluses. The SNB must remain vigilant, possibly renewing FX interventions despite US scrutiny, to safeguard exporters. Overall, Switzerland exemplifies resilience, but global uncertainties demand flexible strategies. As Gerlach notes, the SNB's mindset prioritizes stability over returns, a prudent approach in turbulent times. Future success hinges on diplomatic resolutions and domestic strengths, positioning the economy for modest recovery if tariffs ease.

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Swiss National Bank's Investment Strategy and the Swiss Economy

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