SMI: Galderma and Sandoz enter, Kühne+Nagel and Swisscom exit (cross-border guide)

Context

In brief

• Galderma and Sandoz join the SMI
• Kühne+Nagel and Swisscom leave
• Update established by SIX
• The healthcare sector rises to 40%

Key facts

• Entry date: From Monday
• Stock index: Swiss Market Index (SMI)
• Incoming companies: Galderma and Sandoz
• Outgoing companies: Kühne+Nagel and Swisscom
• Stock exchange operator: SIX
• Main criteria: Average trading volume and free-float capitalization
• New weight of the healthcare sector: 40%
• Previous healthcare weight: 36%

The revision of the Swiss stock index

Starting Monday, the Swiss Market Index (SMI), the most important Swiss stock index, is changing its face with the entry of skin care product manufacturer Galderma and generic drug maker Sandoz. To make room for the two new companies, logistics firm Kühne+Nagel and telecommunications giant Swisscom are leaving the main composition. This move represents a small revolution and is described as the biggest change recorded in recent years on the Swiss stock market. SIX, the company that manages the Swiss stock exchange, had announced this change at the beginning of July. The ranking that determines promotions and relegations in the Olympus of the top 20 market values is based on two specific factors relating to the last twelve months: the average trading volume and the free-float capitalization, meaning the share of a company's capital that is freely tradable on the market. For positions 19 to 22, identified as the buffer zone, additional rules apply to avoid continuous changes caused by small shifts, thus offering members already present in the SMI an advantage over potential challengers.

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Operational details

Comparison with other markets and stock visibility

The prominent presence of individual sectors within the benchmark stock market indicator is not an exclusively Swiss peculiarity. Other well-known international indices also reflect their respective national economies only in part. For example, the Dow Jones Industrial Average illustrates the American economy even less representatively than the SMI does for the Swiss one. The entry of a given company into a well-known and closely watched index like the SMI is not merely a matter of corporate prestige; it concretely increases the visibility and attention paid to that stock by institutional and international investors. Since a vast number of investment funds and ETFs, meaning exchange-traded funds, faithfully replicate the index performance, inclusion can generate additional demand for the affected share, as these financial products are obliged to adjust their investment portfolios. As a rule, this process also leads to an increase in liquidity and trading activity on the market, making the stock potentially more attractive to further categories of investors. However, this effect does not automatically prove lasting over time, since a significant portion of the price movement is often anticipated by market operators even before the company's actual entry into the official benchmark index.

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Key points

Operational analysis for investors in the Swiss market

The revision of the stock exchange price lists managed by SIX entails significant strategic evaluations for those operating directly on financial markets or holding savings instruments linked to Swiss equity indices. Those managing personal portfolios through indexed funds or ETFs must consider that the new sectoral weighting further shifts the center of gravity of the SMI towards the pharmaceutical and healthcare sector, which now accounts for approximately forty percent of the total capitalization. This means that risk exposure and the diversification of one's equity portfolio change structurally, marginally reducing the weight of traditional sectors such as logistics and telecommunications, previously represented by Kühne+Nagel and Swisscom. Institutional and private investors monitoring securities added to or removed from the index must carefully verify the liquidity and trading volumes of the individual securities involved, bearing in mind that price movements linked to the actual entry or exit from the main baskets often tend to be anticipated by the market in the weeks preceding the official implementation of the SIX resolution.

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