The Swiss Market Index (SMI) has completed its latest rebalancing, increasing the weighting of the healthcare and pharmaceutical sector to 40% of total market capitalization. The adjustment follows the inclusion of Galderma, which was spun off from Nestlé Skin Health last year, alongside prior additions such as Alcon and Sandoz from Novartis and Amrize from Holcim.
The shift has drawn comparisons to a ‘pharma index,’ though analysts note historical precedent. In 1997, the combined weight of Roche and Novartis exceeded 45% after the merger of Ciba-Geigy and Sandoz. The current cohort of six healthcare companies within the SMI spans distinct business models beyond traditional pharmaceuticals. Novartis and Roche focus on patented drugs, while Sandoz specializes in generics and biosimilars, with the latter offering higher margins due to regulatory barriers. Lonza provides manufacturing capacity to biotech and pharma firms, Alcon supplies surgical systems and contact lenses, and Galderma operates more like a consumer goods company with a strong brand presence in dermatology.
Analysts argue that despite the elevated sector concentration, the diversity of business models mitigates concentration risk. ‘The six companies differ fundamentally in their revenue drivers, customer bases, and competitive dynamics,’ said Andrea Bally, analyst at Migros Bank. ‘This reduces the risk of a uniform sector-wide shock.’ However, she cautioned that all six firms remain exposed to U.S. healthcare policy and consumer spending trends, particularly given the U.S. market’s significance for their revenue.
The rebalancing has also altered the risk-return profile of the SMI. Christian Gattiker, chief strategist at Julius Bär, views the sector’s renewed growth prospects favorably, noting that pharma, biotech, and medtech have become more attractive after several weaker years. While he does not advocate immediate portfolio adjustments based solely on index changes, he acknowledges that the healthcare sector’s increased influence as a performance driver cannot be ignored. ‘Investors focused on the SMI should be aware that their exposure to U.S. healthcare policy is now higher,’ he said.
For those seeking to reduce regulatory risk in the pharmaceutical space, alternatives exist. The Swiss Performance Index (SPI) ETF, which tracks around 210 Swiss-listed companies, still allocates 35% to healthcare despite excluding Sandoz and Galderma. The Swiss Mid Cap Index (SMIM), however, has seen its healthcare weighting decline from 35% to 15% following the removal of Galderma and Sandoz. Remaining healthcare constituents in the SMIM include Galenica (3.5%), Roche bearer shares (3.5%), Sonova (4.1%), and Straumann (3.8%).
Performance divergence between large- and mid-cap Swiss equities over the past five years has been pronounced. The SMI delivered an annualized total return of 6.2% including dividends, compared with just 0.4% for the SMIM. Michael Bolliger, chief investment officer for Switzerland at UBS Global Wealth Management, suggests a gradual overweight to mid-caps may be warranted. ‘Swiss mid-caps have structurally grown faster, with average organic revenue growth of 7.4% annually from 2016 to 2025 versus 5.1% for large caps,’ he said. Mid-caps also exhibit stronger balance sheets, with an average net debt-to-EBITDA ratio below 1x compared to slightly above 1x for SMI constituents. Nearly 17% of SMIM weight is held by companies with net cash positions, double the share in the SMI.
Bolliger attributes this outperformance to mid-caps’ agility in innovation and international expansion, as well as their sensitivity to improving economic conditions. Leading purchasing managers’ indices point to strengthening global activity, and mid-cap margins historically respond more dynamically to economic cycles than those of defensive large-caps. The valuation premium of SMIM stocks over SMI constituents has narrowed since its 2018 peak, but UBS argues it remains justified by stronger growth and financial resilience. With the removal of a high-multiplier healthcare component from the SMIM, Bolliger sees potential for further re-rating if earnings momentum accelerates.
