Equity Research Report
Macrofund Research
June 11, 2024
Investment Thesis
The Swiss National Bank (SNB) represents one of the cheapest hedge funds, managing a diverse asset portfolio that includes over $142 billion in US stocks, substantial foreign currency reserves, gold holdings, and global equities and bonds. SNB’s strategic asset management and fixed dividend yield result in a low book value. The price escalation over the last decade suggests potential legislative changes, positioning SNB for substantial growth.
Key Points
• Cheapest Hedge Fund: SNB operates like a hedge fund, managing extensive global equities and bond portfolios.
• Massive Asset Holdings: Over $142 billion in US stocks, with significant foreign currency reserves and gold holdings.
• Fixed Dividend Yield: Established by Swiss law, the fixed annual dividend of CHF 15 per share justifies the low price. Without this policy, the stock would surge exponentially.
• Potential Legislative Changes: Price escalation over the last decade implies future legislation, enhancing SNB’s growth potential.
• Unique Market Position: SNB’s role in the global financial system and strategic FX interventions highlight its importance.
• Extremely low price-to-book ratio of 0.06, placing SNB in the 0.5th percentile compared to other financial institutions, reflecting undervaluation and speculative growth opportunities.
Company Overview
The Swiss National Bank (SNB) (Schweizerische Nationalbank, SIX: SNBN), established on June 7, 1907, operates as Switzerland’s central bank and is publicly traded on the SIX Swiss Exchange under the ticker SNBN. SNB’s primary objectives are to maintain price stability and ensure financial stability within the Swiss economy.
Financial Performance
• 2023: CHF -132.5 billion
• 2022: CHF -132 billion
• 2021: CHF 26.3 billion
• 2020: CHF 20.9 billion
• 2019: CHF 48.9 billion
Assets Overview
• Total Assets (2023): CHF 794.6 billion
• Foreign Currency Reserves: CHF 736.8 billion
• Gold Holdings: CHF 57.8 billion
• Equity Investments: CHF 175.3 billion
• Bond Investments: CHF 142.7 billion
Balance Sheet and Asset Allocation
SNB’s diversified asset portfolio includes significant investments in global equities and bonds, foreign currency reserves, and gold holdings.
Dividend Policy
SNB maintains a fixed annual dividend of CHF 15 per share, established by Swiss law in 1907. This policy is the main reason for the low price. Without this policy, the stock would surge exponentially. Macrofund believes price anomalies suggest this law is likely to be changed if the global financial system implodes.
Monetary Policy and FX Interventions
• Negative Interest Rate Policy: -0.75%
• FX Interventions (2023): CHF 85.3 billion
SNB employs a negative interest rate policy to combat deflation and prevent excessive appreciation of the Swiss franc. The bank actively intervenes in the FX market to maintain economic stability.
Valuation Considerations
Valuing SNB shares involves considering them as a perpetual bond with a warrant. The extremely low price-to-book ratio, close to zero, places SNB in the 0.5th percentile compared to other financial institutions, suggesting potential mispricing, which could lead to a rapid adjustment in valuation.
Risks
• Price Volatility: Limited shares and low trading volume lead to significant price volatility.
• Monetary Policy and FX Interventions: Shifts in policy impact stock valuation.
• Economic and Geopolitical Risks: Economic downturns and geopolitical tensions introduce volatility.
• Operational and Reputational Risks: Risks related to monetary policy operations and public perception.
• Regulatory Risks: Changes in legislation or financial regulations affect SNB’s operations.
