Bond ETF recommendation


I wondered if there is a consensus on the best bond ETFs to invest in? I recently became a bit uneasy about how much of my portfolio was invested in stock ETFs, so I sold some and am planning to buy bond ETFs as a way of further diversifying.

Thank you,



No consensus and I would say no candidates. I would say the consensus is closer to not hold any bond funds. Options are:

  • 2nd pillar
  • Cash, some savings accounts still have a positive interest rate.
  • Individual Kassenobligationen
  • Individual bonds of Swiss federal government, long term ones start to have a positive yield (not sure if it is still a case after taxes, though).

And how much if you count 2nd pillar?


I would call it a majority rather than a consensus :smiley: I hold bonds for example. In recent years bonds were less popular because of negative interests, but the point of bonds is not return, it’s to control risk.

For bonds, ETFs are not always the best solution. They are better covered with mutual funds. There are plenty of them available to Swiss retail clients under Swiss or Luxembourger law, and some of them are indexed.

I personally stick to reasonable durations so interest rate changes do not affect me too much. I probably have an average duration between 5 or 7 years. Higher durations mean that you are in for a roller coaster when central banks adjust their rates :smiley: but with small durations, slow interest hikes are actually great for bond investors.

What you need to ask yourself is how to allocate between governments and corporate, and between CHF and foreign currencies. Funds that hedge against currency fluctuations are recommended for foreign currencies because the point is to control risk.


I understood that although that is absolutely true, at this moment the costs of hedging CHF to f.i. USD is very high, due to the interest rate difference - and compared to the yields. Which is another complication.

Your pension fund is your best choice. Do buyins till the limit.

  • Tax reduction (25-35% depening on your marginal tax rate)
  • 1%+ interest
  • Basically 0% default risk

This new bond could probably be interesting for you to invest your money for the next 3 years. This product pays 0.4 % in the 1. year 0.5% 2. year 0.6% in the 3. year. In 2025 situation on the bond market is probably better for long term investments.

At this moment I would not invest in bond ETF as the whole world is awating that interest rates are going up during the next 2-3 years. If you invest right now in bond ETF the risk is high that you will lose money.

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As part of my buy-and-hold strategy, I want 25% of my portfolio to be in a safer asset, because 1. it helps buy when this asset is cheap every time I rebalance, and 2. because to hedge the risk that stocks sometimes perform poorly – see for example the 30ies, 70ies, 00ies Returns By Decade (NYSEARCA:SPY) | Seeking Alpha. Let’s not discuss the 25% here - my retirement situation is complicated, across countries. The question is whether to hold these 25% as govt bonds or in cash? How should this decision depend on current yields and the rate of inflation?

I’m confused about this issue at the moment, with several seemingly reasonable ways to think about this. I’d love your feedback on my reasoning below:

  1. When I started investing in 2018-2019, yields on government bonds were negative and inflation low. Thus, I reasoned that if I bought a bond at 100 CHF with a -1% yield, I’d get get 99 CHF back when the bond matures. Holding the position in cash beats this. Thus I kept my 25% bond allocation in cash. Makes sense?

  2. Now, yields are positive again, and inflation has increased. While inflation makes it a bad time to hold 10-year govt bonds at a fix rate — because the money will be worth less once the bond matures — it still beats getting 0% return on the cash. Thus, now is the time to move cash into govt bonds. Right?

  3. One should definitely hold the 25% of the portfolio as government bonds because we don’t buy these bonds directly but as ETFs whose price fluctuates depending on expected future gains: these ETFs are cheap when yields are low/negative and more expensive when yields are higher. So even when yields were negative back in 2018-2019, I should have bought bonds rather than hold cash. Sure, the fund manager may have charged an extra ~1% on top of the TER to cover negative yields. But the prices per share in the ETF were low, so I could have bought tons of them. A few years later, yields go up again, govt bond ETFs prices go up as a consequence, and guess who now holds tons of high-yielding govt bond ETF shares.
    Also, holding ETF shares whose price will increase with inflation is a better inflation hedge than holding cash.

Conclusion: Reasoning #3 is most accurate. Hold the course. As a buy-and-hold investor, just buy govt bond ETFs like you’d buy stocks ETFs, independently of what yields and inflation may be doing at the moment. Correct?

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Regarding #3: the short term reaction is: yields go up when prices go down, yields go down when prices go up. Now, if the coupons are positive and are reinvested in the ETF, they will contribute to the value of the fund.

Regarding the strategy: a question you may want to ask yourself is: what is the pain level in terms of inflation? At some point the SNB could be forced to stabilize the exchange rate with the Euro and import more inflation from the Euro Zone (currently 8.9%).


If you are talking about “normal” bond ETFs, then it is other way around. How it works with inflation pegged bonds I don’t know and I don’t think there are some in CHF. Probably some corporate floaters, Swiss government has 20 something bonds all together anyway.

So I am definitely not buying bonds with negative yield even if their price can go up if rates and yield become even more negative.


VAGX is the one you’re looking for.


Fantastic, now that you mention it I can remember but just did not have it on my to watch list and at that time when I found it bonds were so uninteresting that I had totally forgotten about it.

What do you think about VAGX?

Is this the equivalent of BND/BNDX that Americans are using?

Yes, VAGX should indeed be the CHF-hedged equivalent of the USD-hedged BNDW (combining BND and BNDX). The US market is about 50% of that, though, while the CHF market is only a tiny part of it. I.e. BNDW has to do a lot less hedging than VAGX. I would recommend combining VAGX with a CHF bond fund (SBI AAA-BBB or a subset of that) to not be exposed to hedging for almost the whole bond portion of your portfolio.

Also note that the VAGX share class is tiny at only CHF 5 million AUM (inception date is September 2021). The fund overall has CHF 2.5 billion AUM, though. While market makers should provide sufficient liquidity, it seems there are often days where not a single trade happens. I.e. the volume is tiny, which may have an impact on the spread.

A possible alternative is AGGS, which is a very similar ETF from iShares. That share class has CHF 218 million AUM and the fund overall has USD 6.3 billion AUM. I hold a (small) position of AGGS.


What I don‘t understand yet: VAGX is at -14% YTD. Avg. coupon is 2.4%, YTM 5.1% and avg. duration is 7 years.

What‘s the expected return (for the next 7 years) if I buy it now and never sell it?

I understand bonds as an individual thing, but don‘t get how it works with ETFs or bond funds.

It depends how interest rates move, esp. for those long duration that are going to be fairly sensitive to change.

Also the quoted yield is before hedging, which is somewhat useless (you’d probably want to compare to a “same risk” CHF bond to get an idea of the expected after hedging yield).

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But if the YTM is 5.1%, shouldn‘t the expected return be 5.1% till the average maturity? Of course before hedging costs.

The fund value will drop as the interest rates rise (it’s bond valuation 101 :slight_smile: )

If the fund composition was fixed (didn’t rollover with new bonds), my understanding is that that you’d expected to receive 5% of the current value in the original currency per year before hedging (but the overall value of the fund will fluctuate based on interest rate, which will also change the effective yield over time).

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Like I said, that‘s easy to understand. But I don‘t know how it works with bond funds with several 1000 different bonds, coupons, durations and constantly changing composition.

Here is a good guide regarding bond etfs, which includes the currency risk part: Bond ETFs And Rising Rates Finally Explained