The Swiss National Bank manages the country's money supply and keeps the franc stable. To do that, it buys foreign currencies, and it parks those funds in assets that can grow. Stocks are part of that mix, and they are a bigger part than you might expect.
Just over a quarter of the bank's foreign-currency reserves are now in equities, with American stocks representing a notable slice of that total. As of June 30, the SNB held $191.4 billion in more than 2,300 U.S.-listed firms, a figure that climbed over 10% during the second quarter, according to its 13F filing with the SEC, published Tuesday. That is the highest level on record. Nvidia, Apple, and Microsoft top the list of the SNB's largest positions.
Not every holding is a household name. In addition, the central bank holds shares worth $716.6 million in defense software firm Palantir Technologies Inc., even amid public criticism. The Palantir stake is small next to the Apple and Microsoft positions, but the bank has kept its shares anyway.
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Central banks typically lean on government bonds and other fixed-income instruments to preserve capital, but the SNB has increasingly turned to equities to boost returns on its massive foreign-currency reserves. The bank's reserve holdings have ballooned over the years because of its interventions to weaken the franc, and a diversified stock portfolio helps offset the costs of holding negative-yielding bonds. This approach is not without risk - a sharp market downturn could erode the value of the bank's financial cushion - but so far the strategy has paid off, contributing to the SNB's profitability and its ability to distribute dividends to Swiss cantons.
The SNB's balance sheet, relative to the size of Switzerland's economy, is among the most expansive in the world. This is the result of years of currency interventions aimed at curbing franc strength. With such a large pool of reserves, the bank has little choice but to seek out equities; the alternative would be to hold large amounts of bonds offering near-zero or negative yields, which would slowly erode the value of its assets. By allocating a quarter of its foreign-currency reserves to stocks, the SNB has managed to turn a potential liability into a source of income.
The scale of the equity allocation also reflects the unusual scale of the SNB's balance sheet, which is among the largest in the world relative to the size of the Swiss economy. Managing that pile of assets requires a pragmatic, sometimes controversial, approach to picking investments - one that occasionally lands the central bank in the headlines for holding companies like Palantir that draw public scrutiny. Yet for the SNB, the priority is not political optics but the stability of the franc and the safety of the country's financial system.
By diversifying across thousands of American companies, the bank spreads its risk while capturing the long-term growth of the world's largest equity market. This strategy has become a central pillar of the SNB's reserve management, and it shows no signs of slowing down as the portfolio continues to climb.
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