Europe has been dominating global headlines since the beginning of this year on deflation fears, the tumbling Euro and political drama in Greece. And now, the unexpected move by the Swiss National Bank to abandon its currency cap against euro has spread fresh jitters across the global stock, commodity and currency markets (read: Guide to European Hedged ETF).

The Swiss Bank scrapped its three-year old peg of 1.20 Swiss francs per euro and the franc, frantically shot up 30% in just few minutes after the announcement. The currency also surged 25% against the U.S. dollar.

In 2011, the Swiss Bank had pegged its currency to protect it from rising. The bank feared that a rising franc would reduce the competitiveness of the countries’ exports to the European Union which accounts for just less than half of the Swiss exports. But now, with euro trading at a nine-year low against the greenback, the Swiss franc cap is no longer justified.

Further, the European Central Bank (ECB) is likely to announce aggressive quantitative easing (QE) measures later this month to reinvigorate growth in the continent and fight deflation. This, along with the diverging policies in the U.S. is putting pressure on the weak euro against the greenback (read: Watch These Europe ETFs If the ECB Prints Money).

The Swiss Bank also pushed its interest rates to the negative territory from 0.25% to 0.75% so as to discourage new flows into Swiss francs and ward off deflation fears that are intensifying with the collapsing oil price.

Market Impact

The central bank’s action has sent Swiss stocks into deep red. The Swiss Market Index tumbled nearly 9% in yesterday’s trading session, marking the biggest one-day decline since 1989. While the stocks performed badly in terms of local currency, U.S. listed shares (ADRs) surged. This is because ADRs benefit from the appreciation of franc against the dollar.

As a result, Switzerland ETFs rallied the most in two-and-half years. We have highlighted them in detail below:

CurrencyShares Swiss Franc Trust FXF

This ETF tracks the price of the Swiss franc relative to the U.S. dollar and appears a great way to play the appreciation of Swiss franc against the greenback. The fund has amassed $177.1 million in its asset base and charges 0.40% in expense ratio. It jumped over 17% on a single day and trades in whopping volumes of more than 23 times the average daily trading. The fund currently has a Zacks ETF Rank of 4 or ‘Sell’ rating with a Medium risk outlook (read: Best and Worst Performing Currency ETFs of 2014).

iShares MSCI Switzerland Capped ETF EWL

This fund is by far the most popular and liquid ETF tracking the Switzerland economy with AUM of $985.2 million. It tracks the MSCI Switzerland 25/50 and holds 41 securities in its basket. The fund charges 49 bps in fees per year from investors. The product is heavily concentrated on the top three firms – Nestle, Novartis and Roche Holdings – with a combined share of 45.2% while other firms hold less than 4.4% share.

From a sector look, health care is the top sector at 32.3%, closely followed by financials (20%) and consumer staples (19.6%). The ETF gained 3.8% on the day and saw trading volume of more than 2.5 times than the normal average daily volume. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

First Trust Switzerland AlphaDEX Fund FSZ

This fund tracks the Defined Switzerland Index and employs an AlphaDEX methodology. It ranks stocks in the space by various growth and value factors, eliminating the bottom-ranked 25% of the stocks. This approach results in a basket of 40 stocks that are well spread out across each security with each holding less than 4.4% of assets (see: all the European Equity ETFs here).

About one-third of the portfolio is allocated to financials while industrials, materials and health care round off the next three spots. The fund has AUM of $53.1 million and charges 80 bps in annual fees and expenses. The ETF added 3.6% though volume was moderate on the day. It has a Zacks ETF Rank of 3 with a Medium risk outlook.

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CRYSHS-SWISS FR (FXF): ETF Research Reports
 
ISHARS-SWITZERL (EWL): ETF Research Reports
 
FT-SWITZERLAND (FSZ): ETF Research Reports
 
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