Yes, and that’s what prevents me from seriously thinking about investing in MMF. It supposed to be safe and low yield, but may suddenly turn out to be risky and negative yield.
Something to explore:
The lowest risk strategy is a 100% money market fund. TER 0.14% p.a.
From the first look, partially CHF hedged, which is a disadvantage from my point of view.
Thanks @Tony1337 !
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What happened to MMF in 2008? I didn’t really follow this.
One large MMF traded below its NAV and was liquidated. There was a government intervention to limit contagion and a run on MMFs.
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I also see an 0.11% TER CH1220495068 from Swisscanto. But their TER is lower than flat fee, so maybe it’s also 0.14%
Any preference for Avadis vs Swisscanto?
It’s not the fund itself, it’s the broker. How are you going to buy this Swisscanto fund? For small amounts, the transaction fees would kill all performance.
I was thinking to check if this Swisscanto fund is available on Swissquote …. Normally there are some flat fee funds there
Why a disadvantage? It’s pretty standard for those funds.
One nice thing about this fund is that it looks like the taxable income is fairly low: https://ictax.admin.ch/extern/en.html#/security/3283146/20231231 (unlike the pictet funds)
edit: though that might be an oversight, since the Avantis fund is managed by LO and all of the LO funds have a more usual 1% income reported in ictax.
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Really? Well, I have thought about the costs of hedging and higher nominal rates, which seems to be not the case, though.
They usually go for low interests bonds.
I am an Interactive Brokers client holding CHF and yielding 0 at the moment and came across the Ticker “CHFO” (Exchange Traded Product on CHF Overnight Rate listed in Switzerland). Reading into the details, the ETP costs 0.10% p.a. while CHF Overnight Saron Rate is at 1.45% p.a. - that means 1.35% p.a. yield after costs so certainly much better than earning nothing on my IB account (obviously I face costs buying the instrument and there is also 0.02% spread on the instrument). Am I missing anything else?
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One question is how this is going to be taxed (it’s not on ictax), it might be favorable if it’s a purely synthetic product. (we might not know until next year, since the fund hasn’t had 1y yet)
Also I assume the biggest risk if counterparty risk (I have no idea how it’s implemented compared to an MMFs that have physical holdings).
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seems no preferential tax from what I saw: "For Swiss income tax purposes the Product is subject to the so-called pure difference taxation (“reine Differenzbesteuerung”). i.e. you buy at say CHF 100 and sell it at CHF 101.30, then you have to pay taxes on CHF 1.30 price difference I reckon (am not a tax expert though).
In terms of counterparty risk it seems to be a fully collateralized setup with SIX Group behind (according to Wiki “SIX is a key financial market infrastructure company in Switzerland.”), so seems reputable but happy to hear your thoughts
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Just read a bit (https://www.six-group.com/dam/download/securities-services/securities-finance/tri-party-collateral-management/six-factsheet-tcm-structured-products.pdf), I think what it means is that SIX manages the collateral computation and holds it, it doesn’t mean the risk is transferred to SIX tho (afaict)
SIX SIS Ltd calculates the collateral requirement (multiple times a day), before collateral for a specific TCM secured structured product is moved and blocked in the TCM account and notifies the collateral provider in case of additional collateral requirements. SIX SIS Ltd will notify the collateral agent in case of a realization event.
I guess given the underlying, risks are kinda small?
That’s interesting since you only pay tax when you sell (unlike many financial products) and could defer taxation by many years.
(also means you need to keep track of the cost basis)
interesting aspect with the deferral of taxes into the future. didnt thought about that one. makes it even more appealing in that case. plus buying it via Interactive Brokers should circumvent any stamp duties so makes it worth from a transaction cost standpoint.