Schweizerische Nationalbank, or Swiss National Bank (SWX: SNBN), Switzerland's central bank, is responsible for conducting national monetary policy in pursuit of a stable price environment broadly beneficial to the country and conducive to economic growth. Alongside the conduct of monetary policy, the bank's many duties include supplying the country with Swiss franc (CHF) banknotes and coinage, compiling financial and economic data, and overseeing electronic payment transactions through the Swiss Interbank Clearing (SIC) system. Swiss National Bank is also tasked with maintaining and managing a level of financial assets that accords with the ongoing demands of monetary policy.
As the bank's foreign currency reserves have ballooned in recent years, so too have its holdings of foreign currency-denominated equities. Indeed, Swiss National Bank's foreign equity holdings grew to roughly CHF 119 billion ($119.7 billion) as of March 31, 2016, a full 20% of its foreign currency-denominated reserves. These foreign equity holdings were equivalent to roughly 18.6% of Swiss gross domestic product (GDP) as recorded at the end of the first quarter of 2016.
Composition of Swiss National Bank Assets
As of March 31, 2016, Swiss National Bank held roughly CHF 646.4 billion in total assets, including CHF 595.4 billion in foreign currency reserves and CHF 39.6 billion in gold holdings. The bank also has roughly CHF 4 billion in Swiss franc-denominated assets in addition to CHF 4.7 billion in international payment instruments and a CHF 1.4 billion reserve position at the International Monetary Fund (IMF). Asset allocation across currencies and asset classes varies over time according to the ongoing demands of monetary policy as determined by the bank.
Foreign Currency Reserves
Swiss National Bank's large foreign currency reserves, which are held primarily in the form of foreign currency-denominated government bonds as well as corporate bonds and equities, have long served a dual role in Switzerland. On the one hand, the assets serve a functional role in the bank's monetary policy as it chooses to engage in foreign exchange transactions and related activities. On the other hand, the assets generate general market confidence as they represent a bulwark against financial crises. In the 10 years immediately prior to 2009, Swiss National Bank foreign currency reserves were maintained at a consistent level under CHF 100 billion.
Global events in recent years have led Swiss National Bank to engage heavily in foreign exchange markets, leading to an unprecedented increase of more than CHF 500 billion in foreign currency reserves between 2009 and 2016. The increase is a function of bank monetary policy focused on restraining appreciation of the Swiss franc in the wake of the 2007-2008 financial crisis and the global recession that followed.
As of March 31, 2016, Swiss National Bank's foreign currency reserves included a 68% allocation to liquid government bonds and foreign-currency deposits in foreign central banks, down from a 71% allocation at year-end 2015. Roughly 12% of reserves are allocated to other fixed-income investments, including corporate bonds and bonds issued by local governments in foreign countries, up from an 11% allocation the prior year. Foreign currency-denominated equities account for 20% of reserves, up from 18% at year-end 2015 and 15% at year-end 2014.
Equity Portfolio
While Swiss National Bank does not publish a detailed breakdown of its stock holdings, it does provide insight into its investment approach. The bank first makes broad asset allocation determinations based on monetary policy demands. Then it follows a fundamentally passive investment approach that seeks to duplicate holdings in a selection of market indexes that combine to provide a globally diversified portfolio. By following an index investing approach, the bank safeguards decision making from political considerations.
At year-end 2015, the bank's equity portfolio included shares of more than 6,700 different companies; this was roughly 1,500 large- and mid-cap companies, 4,400 small-cap companies domiciled in developed countries and 800 companies domiciled in emerging markets. Under established policy, the bank does not invest in any banks or bank-like entities. It also has a socially responsible investment policy in place that restricts investments in companies that engage in certain activities, such as trade in banned weapons.
