‘M4’ Major Currencies (CHF)


Exhibit-1 (above). The chart shows month-end exchange rates of the four currencies in the sample, expressed in Swiss Francs, during the last ten years. For greater clarity, the data has been smoothed.

Exhibit-2 (below). Shown are are annual rates of return (based purely on movements in the exchange rates) of an equal-weight basket of the four currencies against the Swiss Francs, over several distinct time frames. Coloured bars represent the Forex Composite Index, while grey bars reflect the global, multi-asset pension fund benchmark LPP-C40.

All else being equal and over longer periods (since 1999, latest ten years), the strength of the Swiss Franc has been a notable drag on performance. Over the latest 36 months, foreign currency exposure may have been neutral factor impacting Swiss based investors, the 12 months to date have seen a renewed decline in the value of currencies versus CHF.


Exhibit-3 (above). The table shows exchange rates for the composite and each currency at specific intervals in the upper portion. In the lower portion of the table, rates of return for the resulting time frames are shown. For ease of comparison, the best (green) and worst (red) performing currencies in every time frame are highlighted.

Exhibit-4 (below). Here, changes in foreign exchange rates against the Swiss Franc over the course of twelve months to date are highlighted visually. The Euro has declined between twice and three times as much as the other major currencies.

No other country has interest rates as negative as Switzerland as the Swiss National Bank is trying to stem the rise of the Swiss Franc. A genuine challenge to global asset allocation, not least in view of hedging costs out of a Swiss base.


Exhibit-5 (above). The upper graph illustrates the general decline of currencies against the Swiss Franc across ten years. Note how most of this happened in two stages: An initial 20% rise of the Swiss Franc in merely twelve months (spring 2010 to spring 2011) and, following a partial correction (most of 2012) a milder but longer lasting depreciation of currencies against the Swiss Franc towards the spring of 2015.  From the end of 2018 onward, a third ‘leg’ of Swiss Franc strength is manifesting.

Most previous exhibits have expressed the strength of CHF in annualised percentage values. This chart however shows dramatically how such seeming modest but steady changes compound with the passing of time: When foreign currency exposure is expressed as relative to the global multi-asset benchmark, then it becomes visible how FOREX exposure has diluted performance by some 50% in the ten years since the end of 2009.

Exhibit-6 (below). The graph display currency exchange rates of the last ten years. Instead of showing actual exchange rates, all currencies have been set to a base value of 100 at inception. Merely the US Dollar as managed to return to just below its initial value against the Swiss Franc. The remaining three currencies have depreciated by between 20% to 30% in that time. Within that group, the Japanese Yen experienced the biggest swings (see mid-2012 to mid-2015).


Exhibit-7 (above). If one changes the perspective to focus on the more recent history (three years), then all four currency in the sample have returned to levels similar to their value at inception, as shown in the chart above. However, they have taken rather different paths, in two distinct groups: US dollar and yen had been weak from 2017 on, before recovering during 2018 and most of 2019. Euro and Sterling were initially strong relative to Swiss Francs but began to deteriorate again from early 2018 onward, Yet, the ‘winner’ at the end of 36 months is Sterling, having managed to creep slightly higher than at 31.12.2016, mainly due to a bounce in the second half of 2019.

Exhibit-8 (below). The table is divided in three sections: In the upper section a straight change of value are shown within the context of the amplitude during recent three years.

In the middle section annualised rates of change are shown together with annualised risk, and risk-adjusted returns, and in the bottom section a profile of all 36 monthly rates of change is given.

What emerges from the information of Exhibit-8 is: a) the comparatively random nature of currency trends in this period manifest in the near 50% frequency of positive changes, b.) poor proportions between dismal returns and substantial risk.

Put differently, unless the asset(s) held in foreign currency (equities or bonds) performed genuinely well in local currency, to a Swiss based investor and operating out of a currency that is, by any standard, artificially over-valued, foreign investments have been either nerve-wrecking and/or unrewarding.


Exhibit-9 (above). Here, currencies are shown in terms of trailing 36 months rates of change, annualised. Unusually, currently all four currencies have converged very near the ‚zero’ line, but the graph still emphasises how much difference it can potentially make to get currency exposure right. The difference between a weak as opposed to a stable, or strong currency could easily amount to 15% or even 20% in annualised return over three years. Examples are  £ versus Yen (2010), or Yen versus US$ (2015).

Exhibit-10 (below). The graph shows ‚Observed Risk’ calculated over trailing 36 months. It demonstrates rather powerfully, that risk from currency exposure is not only subject to enormous fluctuations but also in the same league as risk from equity exposure. Moreover, at any given point in time, the risk in one foreign currency may be totally different than in another (compare Euro and Yen in 2014.

The Euro (of all currencies) shows the lowest risk, which is most probably a reflection of the Swiss National Bank constantly attempting to put a floor under it, at almost any cost.

‘Observed Risk’, as all other ex-post risk-metrics may be rather different to forward looking risk. Thus, more likely than not, extreme readings will serve as ‚contrary indicator’ (see Yen in 2013 and 2015)


Exhibit-11 (above). It is almost painful to calculate the effect of foreign currency exposure to a Swiss Franc based investor over twenty years since the end of 1999. The equal-weight composite has been a drag on performance to the tune of over 2% per year.

That is twice the minimum interest Swiss pension funds are legally obliged to pay on retirement savings. It seems almost ironic, that the Euro should be the least poorly performing currency within the sample, probably a reflection of the Swiss National Bank’s determination to keep that particular exchange rate as stable as it can, at almost any cost (such as the destruction of savings through negative bond yields).