Review of three years of the OLZ Equity Switzerland Small & Mid Cap Optimized ESG Fund

Swiss small and mid-cap segment: returns, risk, and potential for optimization

While the SMI and the large-cap companies it contains are likely to be familiar to most investors, it does not adequately reflect the diversity of the Swiss corporate landscape. In addition to the well-known heavyweights from the pharmaceutical and financial services sectors, the Swiss stock market comprises numerous other, often less noticed and smaller-cap companies. Many of these are grouped together in the SPI Extra and dominate the small and mid-cap segment. Compared to the SMI, the SPI Extra has generated an annual excess return of around 1.3 percent over the past two decades. This can be explained in particular by the "size premium" well documented in financial market research, according to which smaller companies achieve higher returns in the long term than larger-cap companies. However, the differences in returns between top and bottom performers in small and mid-cap universes are greater than in large-cap universes. In addition, analogous to the spread in returns, there is also a considerable difference in risk distribution, which creates favorable conditions for systematic portfolio optimization.

Excellent ranking in Citywire

This is where the OLZ Equity Switzerland Small & Mid Cap Optimized ESG Fund comes in. As part of OLZ's minimum risk optimization, securities with a tendency toward lower risk are overweighted, while riskier securities are underweighted accordingly. As a result, the fund has a significantly lower risk profile than the benchmark. This approach clearly distinguishes the fund from many other strategies in the Swiss small and mid-cap segment, which primarily focus on fundamental stock selection. Many peers are also closer to the benchmark and more cyclically positioned. A glance at the Citywire rankings for Swiss small and mid-cap equity funds over the last three years shows that the defensive orientation does not come at the expense of returns.

The risk/return chart illustrates that, in addition to its significant outperformance relative to both the benchmark and all peers, the fund also has a significantly reduced risk profile. While the SPI Extra recorded an annualized volatility of 10.4 percent over the past 36 months, the volatility of the OLZ Equity Switzerland Small & Mid Cap Optimized ESG Fund was around a third lower at 7.2 percent.

Impressive drawdown reduction

OLZ's minimum risk optimization proves particularly effective in periods of increased market volatility. As the chart below clearly shows, the OLZ Equity Switzerland Small & Mid Cap Optimized ESG Fund recorded the lowest maximum drawdown of 5.5% among all 61 funds listed in the Citywire ranking during the period under review.

The OLZ fund also impresses in other respects

In addition to risk reduction through the OLZ minimum risk approach, the structured investment process also systematically takes sustainability aspects into account. Securities with a lower risk profile tend to have better ESG characteristics, which means that minimum risk optimization and ESG integration complement each other well. The OLZ portfolio thus achieves a higher MSCI ESG score of 7.7 than the benchmark (MSCI ESG score of 7.4). At the same time, CO2 intensity (Scope 1 & 2) is reduced by over 35 percent compared to the benchmark.

With an annualized return of over 11 percent since launch and a significantly lower risk profile, the fund has a clearly higher risk-adjusted return. The Sharpe ratio of 1.61 compared to 0.86 for the benchmark impressively underscores the efficiency of the OLZ portfolio.

This combination of attractive returns, reduced risk, and an integrated sustainability approach clearly meets a need in the market. As a result, the fund's assets have grown to CHF 190 million over the past three years.

The OLZ Equity Switzerland Small & Mid Cap Optimized ESG Fund enables investors to participate in the return potential of the Swiss small and mid-cap segment with a significantly reduced risk profile and an improved sustainability profile thanks to the OLZ minimum risk approach. We would be happy to provide you with more detailed information about our fund if you are interested.