iShares MSCI Switzerland Capped Index (EWL)

The iShares MSCI Switzerland Capped Index ETF (EWL), listed on the NYSE Arca, is part of my investment strategy Ex-US International ETFs and Dividend Stocks. This seeks to achieve a solid and progressive dividend yield, while protecting itself against currency and market risk. The ETF aims to replicate, before fees, the price and yield of the Swiss MSCI 25/50 index, which is composed of shares of companies listed mainly on the Zurich Stock Exchange. It is designed to measure the performance of large and mid-cap companies on the Swiss market. With 38 constituents, the index covers approximately 85% of market capitalization. The fund permanently invests at least 80% of its assets in securities of this index.

The index is called capped, meaning that it limits the weight of a single security. It thus sets a maximum percentage on the relative weighting of a component which is determined by its market capitalization. This prevents a single position from exerting a disproportionate influence on the index.

For example, in Canada, the S&P/TSX Composite Index limits the weighting of any one component to a maximum of 10%, regardless of its market capitalization. This index was introduced in 2002, following the rise and fall of Nortel Networks, which at its peak represented nearly one-third of the total market capitalization of all stocks in the old TSX-300 Index.

The Swiss MSCI 25/50 index limits the weight of a single component to a maximum of 25%. On the other hand, the sum of the components that represent more than 5% of the index must not exceed more than 50% of the total assets. This is a priori a good thing given the presence of the heavyweights Nestlé, Roche and Novartis on the Zurich stock exchange. However, on closer inspection we realize that the weightings of the Swiss MSCI capped 25/50 index are very close to those of the SPI index, which represents almost all the securities traded on the Swiss stock exchange.

Top ten positions

Company	EWL	SPI
NESTLE N	17.79%	17.95%
NOVARTIS N	16.18%	14.28%
ROCHE GS	14.89%	13.03%
UBS N	5.53%	5.02%
ABB LTD N	4.40%	4.44%
RICHEMONT N	3.85%	4.28%
CS GROUP N	3.48%	4.19%
ZURICH INSURANCE N	3.31%	4.05%
SYNGENTA N	2.51%	3.09%
SWISS RE N	2.33%	3.00%

Sectoral distribution

EWL  offers a modest average yield of 2.00%. The dividend, on the other hand, is growing at an impressive average annual rate of 20.76% (in USD). This is certainly due to the strength of Swiss companies, but above all to that of the Swiss franc against the dollar. Volatility in CHF, thanks to the sector diversification and the defensive nature of the securities that make up the ETF, amounts to only 15.43%, which is very appreciable. The costs related to the management of the ETF are minimal, at 0.53%.

EWL is a perfect stock to diversify a heavily dollar-oriented portfolio., which is often the case when following a dividend growth strategy. Thanks to its strictly Swiss composition, the ETF displays a $risk almost zero. This means that a variation in the greenback has no impact on the CHF value of the security.

EWL undoubtedly has some nice characteristics for a growing dividend payer. In addition to the income it provides, it allows you to cover yourself against monetary risk while diversifying your portfolio with a nice selection of top-tier stocks, at a lower cost (0.5% expense ratio). With a **** rating, it is ultimately a stock that offers a very good profitability/risk ratio. It is a stock that could become interesting in the event of a price drop, for example. So keep a close eye on it this year...

Sources: Yahoo Finance, Swissquote, MSCI, money.usnews.com, Investopedia