fritz zurbrugg : the swiss national bank ’ s investment policy – options and limitations speech by mr fritz zurbrugg, member of the governing board of the swiss national bank, at the money market event, zurich, 27 march 2014. * * * accompanying charts can be found at the end of the speech or on the swiss national bank ’ s website the speaker would like to thank dirk faltin and adriel jost for their valuable support in preparing this speech. he is also indebted to erich gmur, marco huwiler and sandro streit for their insightful comments. ladies and gentlemen i would like to welcome you to our traditional money market event in zurich. i am delighted that so many of you have responded to our invitation. the focus of my comments today will be the investment policy of the swiss national bank ( snb ), since it is now exactly ten years since the new national bank act ( nba ) came into force, opening up new options for the snb in the management of its foreign exchange reserves. today i want to take the opportunity of presenting an assessment and acquainting you with the most important aspects of our investment policy. one of the most important and striking changes since 2004 has been our investments in equities and i will therefore focus particularly on our equity investments in my remarks. following my presentation, my colleague dewet moser will take a closer look at developments on the foreign exchange and money markets. monetary policy conditions our investment policy differs in a number of ways from that of other large investors, whether they be private sector investors or sovereign wealth funds. this is due to the snb ’ s special role. as an independent central bank, the snb conducts switzerland ’ s monetary policy. our investment policy is always subordinated to monetary policy and can only be understood in the context of this policy, which is currently shaped by the minimum exchange rate of chf 1. 20 against the euro. we introduced the minimum exchange rate in september 2011, and since then we have enforced it consistently. you will recall how, at the time, the debt crisis in the euro area was threatening to deteriorate. the upward pressure on the swiss franc was immense. for the snb, it was important to ensure price stability and avert serious damage to the swiss economy. seen from the current perspective, this was certainly achieved. two and a half years after its introduction, the minimum exchange rate remains a key

the stock market. in other words, the snb basically does not select individual equities. instead, we use rule - based procedures to invest in a very broad equity universe. at present, the snb holds some 6, 000 securities in more than ten currencies. the equity universe on which our equity investments is based covers some 90 % of global market capitalisation. we mainly invest in mid and large cap companies. this makes sense, particularly in view of the special liquidity requirements i have already mentioned. in addition, we also place funds in small cap companies. in terms of market capitalisation these holdings only account for a small portion of our equity portfolio, but in numbers they make up about three - quarters of all the securities we hold. this, too, shows the breadth of our equity universe. when selecting our equities, we use a benchmark. this is a combination of various commonly used indices, assembled by us. as soon as we have determined the benchmark, equity investment becomes a largely automatic process. why does the snb not make targeted investments in individual companies or sectors where an above - average return can be expected? in other words, why do we not engage in stock picking? warren buffett is quoted as having said, wide diversification is only required when investors do not understand what they are doing. i can assure you that our investment specialists have an excellent understanding of what they are doing. however, we choose to have recourse to a broad equity universe for the following four reasons. first, we achieve a greater diversification effect within the equity segment by investing as widely as possible, across both regions and sectors. second, it should not be our objective to enforce strategic or, indeed, political interests by means of our investments in individual companies. this could limit our monetary policy room for manoeuvre and would also make our position vulnerable. due to the size of our foreign exchange reserves, the snb could quickly acquire large shares in companies, and this might be misconstrued as strategic participations in the event of active management of our equity holdings and corresponding overweightings in some areas. our strategy ensures that holdings in individual companies remain low. third, through a passive strategy we can minimise our market influence, since our policy does not cause us to give preference to individual securities or sectors. fourth, our investment horizon is very long - term, that is, it spans several business cycles. the academic literature shows that