Moreover, irrespective of such extreme situations, we have to manage our currency reserves in the best interests of the country and thus make investments that retain their real value over the long term. Implementation  So, we pursue two objectives with our investment policy – ensuring the availability of the balance sheet for monetary policy purposes and preserving the value of our currency reserves. Page 4/10  In order to achieve these two objectives, the SNB’s investment policy is guided by a number of criteria. In addition, it has to meet two important requirements. Let’s start with these requirements. First, we cannot hedge currency risks against the Swiss franc. Such hedging transactions would trigger additional demand for Swiss francs, thereby increasing upward pressure on the currency. This would run counter to our current monetary policy, which is geared at reducing pressure on the Swiss franc. Second, in implementing our investment policy, we aim for minimal market impact. This is the fundamental distinction between investment policy and monetary policy. Monetary policy measures are deliberately targeted to change market prices. They are intended to nudge monetary conditions in Switzerland – interest rates or Swiss franc exchange rates – in the desired direction. By contrast, the SNB’s investment activity should not trigger any price changes. For this reason, when investing, we always take into account the absorption capacity of the markets. When restructuring our investments, whether between different investment instruments or between different currencies, we exercise prudence and caution.

Our foreign currency investments used to be primarily government bonds until we added the corporate bonds in 2004, and then equities in 2005. The equity portfolio today accounts for 20% of the foreign exchange reserves (cf. chart 6). For the long-term value preservation of currency reserves, the return on assets is also a key criterion. It is important to achieve an adequate return in local currency, particularly in view of potential currency losses in the case of Swiss franc appreciation. The SNB’s investment policy therefore aims for an appropriate security/return ratio, while still taking into account the criterion of liquidity. Page 5/10  What does this actually mean for the implementation of our investment policy? The Governing Board sets specific bandwidths for the various currencies and investment categories employed in the management of bonds. Working within these bandwidths, our portfolio managers aim to ensure the best allocation of bonds according to current market conditions. The equity portfolio, by contrast, is managed as neutrally and passively as possible. We buy and hold equities of a particular company in proportion to its weighting in the country’s stock index. In this way, we ensure that our activities have as small an impact as possible on the relative share prices of individual companies or sectors. Equally, this prevents specific biases towards or against certain companies or sectors from influencing our investment policy. In order to guarantee this neutral approach as fully as possible, we are very wary of making any exceptions.