Responsible Investment and the Use of Passives Are Taking Hold in Switzerland

Responsible Investment and the Use of Passives Are Taking Hold in Switzerland

Swiss retail investors increasingly want environmental, social, and governance factors to feature in their portfolios

September 2019, London—Cerulli Associates’ latest report, Asset Management in Switzerland 2019: Achieving Success in a Growing Asset Management Market, shows that environmental, social, and governance (ESG) investing is playing an increasing role in the Swiss retail market, largely in response to client demand.

Almost half of the asset managers that Cerulli surveyed in Switzerland expect ESG investing to see moderate growth in the country over the next 12 to 24 months and 26% anticipate strong growth. Private banks continue to play a key role in the Swiss retail market and the channel has significant potential when it comes to responsible investment. Nearly three-quarters (73%) of the Swiss private banks Cerulli surveyed expect to see increased demand for ESG investments from their clients over the next 12 to 24 months. In addition, 50% of the asset managers in Switzerland that Cerulli surveyed said that they expect high demand for ESG products from private banks in the next 12 to 24 months and 40% of them expect high demand in the independent non-bank wealth managers channel.

“Best-in-class is set to remain the most important ESG integration approach for banks in Switzerland,” says Fabrizio Zumbo, associate director in Cerulli’s retail research team and lead author of the report. “However, exclusionary screening, which is essentially a starting point for ESG investing, will decrease as private banks’ approaches to responsible investment become more sophisticated. They increasingly adopt ESG engagement, ESG voting, and sustainable thematic investment strategies.”

Alongside the growth of responsible investment in Switzerland, passive investing is also expected to increase. More
than half (58%) of the Swiss private banks Cerulli surveyed anticipate increased demand for index funds over the next 12 to 24 months and 62% foresee increased demand for passive exchange-traded funds (ETFs). In addition, 58% of respondents expect increased demand for active ETFs in the next 12 to 24 months and 50% expect increased demand for smart beta ETFs.

The European cross-border managers Cerulli surveyed also expect Swiss ETF assets to grow: 36% of respondents anticipate fast growth in the sector and 50% forecast moderate growth. Cerulli’s research shows that 30% of Swiss private banks are using ETFs to establish cost-efficient diversified holdings. In addition, 22% use ETFs for specific sector exposure and 14% for tactical positioning.

“Private banks remain a leading distribution channel for asset managers in Switzerland. Targeting them with specialized
and innovative offerings, including ESG and thematic strategies, particularly in the fixed-income domain, could open
new opportunities for asset managers in the country,” says Zumbo. “In addition, Swiss investors do not have a structural allocation to emerging markets. Given that fundamental valuations remain attractive in the long term and local investors are looking for greater diversification and new drivers of returns, demand for emerging market ETFs is rising.”

This and several other new findings make up Cerulli Associates’ Asset Management in Switzerland 2019 report.

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