The Swiss National Bank’s (SNB) decision last Thursday to scrap the franc’s peg to the euro caught scores of market participants off-guard and the impact was felt across the exchange traded funds landscape.
Although the CurrencyShares Swiss Franc Trust (NYSEArca: FXF) jumped 18.5% in last week’s last two trading sessions, the effects of a stronger Swiss currency not done being felt. Income investors that have embraced international ETFs, such as the iShares MSCI Switzerland Capped ETF (NYSEArca: EWL) and the Vanguard FTSE Europe ETF (NYSEArca: VGK), on the basis of those ETFs’ large exposure to Swiss dividend stocks might be forced to reassess those positions because payouts in one of Europe’s most dependable dividend markets could come under fire due to the surging franc. [Investors Left Swiss ETFs too Soon]
“The payout ratio will jump from an already high level (54%), and soon we would expect Swiss companies to talk about dividend cuts,” said Societe Generale in a research note published last Friday, a day after the SNB announcement.
EWL, the largest Switzerland ETF, allocates 20% of its weight to the financial services sector, including a 3.2% allocation to Credit Suisse (NYSE: CS).
Unfortunately for dividend investors that were mulling allocations to Switzerland-heavy ETFs, the potential for dividend cuts does not begin and end with Credit Suisse and EWL.
“Companies such as big pharma’s Novartis and Roche as well as Adecco, the world’s biggest staffing firm by sales, generate more than 95 percent of their sales from abroad, according to Morgan Stanley,” reports Reuters.