Also, forex movements are notoriously very hard to predict. If you think you can (I don’t think I do), there’s a lot of money to be made trading forex pairs directly.
I wouldn’t change my allocation based on the information you’ve provided.
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Fair enough, hadn’t really thought of all that. I was mainly contemplating what to do with my VIAC portfolios (stock vs. cash) in preparation for a market crash, which I personally expect to happen in the next two years, even though my 3 Pillar will most likely be left untouched for another 20 years or so.
I have been using the following strategy on all my portfolios and for a couple of years now, which has given me returns of 40% and 63%, and 8% on the portfolio I had recently opened.
CSIF SMI - 2%
CSIF SPI Extra - 35%
CSIF US - Pension Fund - 35%
CSIF World ex CH Small Cap - Pension Fund - 15%
CSIF Emerging Markets - 10%
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If you’d want to use that money in the short term (before a potential crash has the opportunity to recover), then moving to cash is the right option.
If you don’t need the money for the next 10 years, then riding the wave all the way down and all the way up probably has the most chances to get you the best outcome. In order to do that, you’d have to assess what asset allocation would allow for you to sleep at night during the potential downturn.
I’m personally very fond of the Account Plus solutions, which allow to still capture some market gains while being very stable due to 95% cash, without fees.
Another option is to build a type of “All Weather” portfolio trying to minimize risks while still attaining good returns. You can search for “Golden Butterfly”, “Permanent Portfolio” or “All Weather” to get an idea of their composition, why they’re built that way and a handful of articles pondering what effect the current interest rates environment could have on them. Portfolio Charts has a good article on the topic of choosing the right assets to get good risk-adjusted returns, albeit US centered : Three Secret Ingredients of the Most Efficient Portfolios – Portfolio Charts
I’d also consider my 3a assets as part of my global portfolio, which would include 2nd pillar and taxable assets, including any equity in a home you might have. The purpose is to have the right global asset allocation to allow for you to reach your goals while still sleeping soundly. If you have a taxable account, money is fungible. If you’ve got all your equities in your 3a, want to sell some and use the proceeds, you can sell the equities in the 3a, buy an asset that you hold in your taxable account with the proceeds (cash, gold, bonds, RE fund…) then sell an equivalent amount of that asset in your taxable account and use that as you please.
Edit: to answer your question about our own strategy, I’m using my 3a to buy international equities (focusing on swiss stocks in taxable), so I’m at 60% World ex CH and 37% World ex CH hedged.
I may want to access these funds to buy a home in the short term but my life plans don’t depend on it (I’m willing to wait if the funds are not available anymore) so I’m willing to take some risk and am pairing that allocation with a plan to get out and in the market in case of significant movements. That plan is likely to get me less returns than a simple buy and hold strategy at the correct asset allocation. Risk assessment is a very personal thing, mine is that factoring in the learning experience and entertainment value makes it worth the try.
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I am about to open a new account on VIAC mimicking “Global Sustainable 100”, but with lower fees.
Global Sustainable 100 (0.53% fee)
- SPI ESG: 37%
- MSCI EMU SRI: 7.44%
- MSCI UK SRI: 3.16%
- MSCI USA ESG Leaders: 33.44%
- MSCI Pacific SRI: 7.00%
- MSCI EM SRI: 8.96%
My idea is to replace the expensive assets “EMU SRI, UK SRI, USA ESG Leaders, Pacific SRI” by the single, cheaper one “CSIF World ex CH ESG – Pension Fund Plus”. Does this make sense or am I missing something? It’s a cost reduction by roughly 0.05% by keeping the ratio constant, i.e. 53%.
Only 35% SPI ESG are possible if you use an individual strategy. I have to add a certain amount of SPI Extra. How would you balance those two? I am aware that they are partially covering the same companies.
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Yes. I don’t know why this is not the standard strategy. SPI ESG is a joke bc there isn’t enough company in Switzerland to make a good index.
Otherwise, you can choose Finpension with 100% CSIF World ex CH ESG.
It makes sense, though CSIF World ex CH ESG - PF+ doesn’t hold Emerging Markets. I wouldn’t fret it, the lower fees are more attracting to me (others may beg to differ).
[edit: rereading your message, I realize that you would keep the UBS ETF MSCI Emerging Markets SRI allocation, so almost no difference, but less fees. Good spot!]
If you’re interested in ESG, I would consider taking more CSIF World ex CH ESG hedged - PF+ instead of the CSIF SPI Extra, and potentially some CSIF SPI ESG, 37% is a huge home bia for a stock market as small as the swiss one. It’s ultimately your choice.
You can get close to it with VIAC with 60% CSIF World ex CH ESG - PF+ and 37% World ex CH ESG hedged - PF+. There’s a cost to hedging but it’s still with VIAC, and good enough in my book.
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Thanks for the hint of considering CSIF World ex CH ESG hedged - PF+. This reduces the home bias, but it costs extra for the hedging. The TERs for the hedged and unhedged funds are the same (0.03%). I guess that the hedging costs are hidden somewhere else.
What are your thoughts about home bias vs. hedging? What is considered worse?
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You could maybe replicate their vested strategy here: VIAC-Global-durable-100-FZ-FR.pdf
By doing this setup:
- CSIF SPI ESG - 35%
- CSIF World ex CH ESG Hedged - Pension Fund - 5%
- CSIF World ex CH ESG - Pension Fund - 52%
- CSIF Emerging Markets ESG - 8%
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I finally decided for this allocation:
- CSIF SPI ESG: 32%
- CSIF World ex CH ESG PF+: 51%
- CSIF World ex CH ESG hedged PF: 5%
- UBS ETF MSCI Emerging Markets SRI: 9%
Total costs: 0.44% + 0.04% TER = 0.48%
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None is inherently worse, or even bad.
Swiss home bia exposes you to concentration risk (being invested in few companies concentrated in healthcare, financials and consumer staples (Nestlé)). Nestlé, Roche and Novartis make up 46% of the CSIF SPI ESG fund).
On the short term, hedging can have beneficial or negative effects. It adds stability to investments in foreign currencies, reducing both positive and negative impacts of currency fluctuations and generates additional fees, which would be why it can be considered as a cost when considered on a long term perspective. In this specific situation, the costs would be part of the performance of the funds. Since the fees are probably minimal in regards to the currency effects, they get mixed in the noise.
Since bonds are usually taken for their low volatility (among other desirable properties), it is usually considered that it’s worth hedging investment grade bonds denominated in a foreign currency. Since stocks fluctuations are bigger than currency swings, it’s usually considered that hedging a stock position held for the long term is not worth it.
Pictet has a good piece on it for individual investors (just ignore the part selling their solutions): https://www.am.pictet/en/uk/global-articles/2018/educational/demystifying-currency-hedging
My own take is that having 20% of assets in a single stock (Nestlé) is a bigger risk than the small cost of hedging, which can also have beneficial effects on the short term. Unless I had a specific reason to want more swiss stocks, I’d personally go for foreign stocks hedged in CHF to reach the 40% allocation to CHF denominated assets required by VIAC.
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While I agree that hedging investment grade bonds in foreign currency often makes sense and currency hedging stocks is less useful, my argument against the latter is slightly different.
(Non-inflation-linked) bonds are directly tied to a nominal value of a particular currency. I.e. you have 100% exposure to that foreign currency (incl. the corresponding interest rate policy), which you can hedge.
However, the valuation of stock is based on expected future earnings. For one, most (mid-to-large) companies have revenue in different countries with different currencies, which means that the exposure to the currency of the stock listing is only partially relevant. Second, when there is inflation, companies raise their nominal prices. I.e. their nominal earnings and thus also the valuation of the company may rise when inflation is expected. With that, nominal currency hedging doesn’t make much sense to me. That said, depending on various factors, inflation may still result in reduced real earnings but that’s not directly relevant to this discussion.
Agreed. I have a home bias but I limit SMI/SPI such that (roughly) the largest company in that index doesn’t get a higher allocation in my portfolio than the largest company in the world.
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I asked VIAC why it’s not possible to replicate the “Global Sustainable 100” vested strategy for the 3rd pillar. Please find below their reply in German:
Bei der eigenen Strategie sind die Bandbreiten in Absprache mit der Stiftungsaufsicht entstanden, um eben dem Kunden ein gewisses Mass an Diversifikation oder auch Einschränkungen von gewissen Risiken (bspw. Fremdwährungsanteil) vorzugeben.
Da die Standardstrategien von der Stiftung fix vorgegeben werden und der Kunde dies auch nicht beeinflussen kann, gibt es hier in Ausnahmefällen quasi Überschreitungen dieser Limiten.
(ähnlich bspw. auch beim SMI in den klassischen Fokussen).
Their answer about using the vested strategy for the 3rd pillar.
Die 3a Strategien sind rund 2.5 Jahre älter. Als wir da gestartet sind, gab es seitens CS noch keine ESG Fonds. Wir haben daher die UBS ETF genommen, die in der Umsetzung auch etwas strenger (also etwas “nachhaltiger”) sind.
Bei der Lancierung der FZ Lösung haben wir dann aber aus Kosten- und Effizienzgründen direkt mit den CS Fonds losgelegt.
Es ist geplant, dass wir die 3a Strategien eines Tages auch anpassen und in die CS Fonds switchen werden. Wir haben dazu aber noch kein konkretes Datum.
Bottom line: They intend to switch, but the date is not fixed yet.
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Any suggestions for 2022? This portfolio has worked well for me the past years (it used to be rated here as being the best custom strategy), but I conclude from my 2021 report that CSIF World ex CH Small Cap and CSIF Emerging Markets have given me a negative return. VIAC suggests me the Global 40 strategy. I expect the European / Swiss markets to outperform the US in 2022, so I’m considering changing my strategy a little.
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What about their Global 100 default strategy if in your mind the swiss market will outperform the US one ? This strategy is heavy invested in the SMI and SPI Extra (30% - 10%).
[Deleted: on second thought, I’m creating another thread, the topics don’t need to be related: VIAC is launching a new life insurance product]
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I hope I’m not opening up a can of worms here but…
What’s the latest consensus on the optimum Viac 3a portfolio? In terms of cost and asset allocation?
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Finpension is better 
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This is a very personal decision. What is right for one person is not right for another.
Somebody with a long horizon and risk friendly can go for a high stock percentage.
Somebody with a shorter horizon or risk averse should stick to smaller percentages.
The driving question is whether you will continue to sleep at night when the markets crash, or if you will be tempted to sell at the worst possible time.
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