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Swiss Real Estate Fund Market Overview
The Swiss real estate fund market has been under pressure due to increasing interest rates, resulting in a significant drop in premiums. Despite their historical popularity, these funds are currently experiencing a decrease in market value.
Market Dominance and Capitalization
UBS dominates the Swiss real estate fund market following the acquisition of Credit Suisse, which comprises 42 funds with a total market capitalization of 58.9 billion Swiss francs as of April this year.
Decrease in Premiums
The premiums, also known as “Agios,” which investors are willing to pay for these funds, have decreased significantly in recent years. According to a senior investment strategist at Wellershoff & Partners, these premiums have halved since 2022 and are currently at historically low levels.
Valuation and Risks
It is believed that Swiss real estate funds are not particularly undervalued at the moment and, in fact, some of them may be overvalued. This is attributed to the evaluation of the funds based on the expected future value of the properties and rental income, using a discount factor or interest rate. Additionally, there are risks associated with these products, such as limited control over the fund managers and associated fees, and the influence of market factors.
Investment Considerations
Despite the potential advantages of investing in real estate funds, such as diversification and liquidity through daily trading on the stock exchange, there are risks associated with these products. Investors have limited control over the fund managers and associated fees, and the funds are influenced by market factors. Additionally, individuals with exposure to Swiss real estate through pension funds and private property ownership may face an overweighting of their assets in real estate, making further investment in this asset class less advisable.
Market Performance
The Swiit index has shown a positive return of 3.31% this year, but a negative return of -0.86% over the past three years, largely due to a significant decline in 2022. However, over a seven-year period, the index has delivered a more favorable return of 3.3% per year.
Conclusion
While Swiss real estate funds have historically been popular investment options, the current market conditions, including declining premiums and potential overvaluation, warrant careful consideration for investors and savers. The impact of rising interest rates and inflation on property valuation, along with the risks and potential overweighting of real estate assets, should be carefully evaluated before making investment decisions in this asset class.
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