Hi all, first post here, been reading MMM stuff a lot. I have only one question right now but it’s so important I’m registering :). Might have other questions later but you guys discussed everything I’d possibly want on dividends, allocation, etc.
What is the difference between VRWD (USD @ LSE) and VWRL (CHF @ SIX), and for a Swiss individual, is it really justified to buy the former when:
you get charged exchange fees (CHF to USD, eventually USD to CHF when you retire or cash out),
fees to buy shares from most Swiss institutions (let’s say we keep the money here ) are way higher (buy 20 shares of each: about 50 USD for the former, 15 CHF for the latter).
I don’t think VWRL CHF is hedged (might be wrong, if hedged, I understand why I’m not going to hold it). If not hedged the last reason I’d think VWRL CHF is not super attractive is liquidity / size of the fund, is that it? And how crucial of a problem it is vs. the cost difference?
Thanks a million for all the info! Thanks to this thread and other resources I’m feeling comfortable, going for 80% equity (50% total world, 10% SMI, 20% Swiss small cap), 20% cash (bonds in CH?.. lol), very long horizon. I understand the 50 world - 30 Switzerland ratio might be bad in some people’s view but well, I love my country and believe in it long term. Might refine that allocation as time goes buy.
Have a great 2017 all!
Independent from choosing the investment vehicle (ETF or others), if you believe in your country and consider the currency question (CHF or USD - same applies also for EUR vs. CHF), then I’d highly suggest you to check out the long term chart on USDCHF (http://fxtop.com/en/historical-exchange-rates.php?YA=1&C1=USD&C2=CHF&A=1&YYYY1=1953&MM1=01&DD1=01&YYYY2=2017&MM2=01&DD2=15&LANG=en) which shows you how back in 1971 (just when the Bretton Woods system ended): 1 USD could buy more than 4.38 CHF. Given the current situation - USD government debt situation (compare to Switzerland here: http://www.tradingeconomics.com/united-states/government-debt-to-gdp) - I’d highly suggest to keep a rather global exposure BUT hedged back into CHF to safeguard your purchasing power for the long run. Imagine if you’d have invested 100$ in USD denominated ETFs back in the 70’s vs. a CHF hedged investment solution: You’d loose 75% in purchasing power from the currency impact!
All the best with your investments!!!
I’ll address your point > fees to buy shares from most Swiss institutions (let’s say we keep the money here ) are way higher (buy 20 shares of each: about 50 USD for the former, 15 CHF for the latter).
First things first, find a low cost broker to work with. As for today I do use Corner Trader it used to be the broker with the lowest fees in Switzerland (check commissions here) where over 75kCHF account you pay less in commissions per trade (12CHF minimum per trade) which is still prety high!
Recently I’ve been looking at De Giro (check commissions here) but I haven’t started an account there. They have dam low fees but there is a small trick I need to clarify, (that is their so called “connectivity costs”) so, as soon as I do clarify this I’ll let you know guys.
to adress the currency issue: the VWRD itself is in USD, so no matter what currency you buy it, the fund beneath is USD. AFAIK (no guarantee!) the CHF version at six is simply the original USD version but Vanguard does the currency conversion with less unfavorable rates than the banks do when you buy the USD version at LSE with swiss francs.
So, I think VWRD at SIX is listed in CHF but not hedged. I read (again, no guarantee!) than any hedges of ETFs have an effect on a time scale smaller than a year but have no effect on the long term.
Thanks all! Great insights!
@nugget: Currently I think along exactly the same lines, including the value of hedging ETFs (only good for < 1y) and buy VWRD at LSE, USD, but I’d have loved to have some hard facts to either prove me wrong (which I’d be glad, because of the cost decrease) or right .
To all of those who are considering buying currency hedged ETFs : although I understand the motivation behind it, I have a hard time to understand how it can be integrated in a low fees framework :
1- the TER is usually sensibly higher -> one need more management to implement these funds
2-if you want to hedge against currency variations, you have to use a big part of your capital to buy future contracts on the relevant currencies. That is : a big part of your capital is not replicating the benchmark index.
3- all of these future contracts have a fixed maturity, so the fund manager has to roll these contracts : this also have a cost (I don’t know how much, but i would not be surprised if it was much more than the TER)
If someone can explain to me how these drawbacks can be bypassed, then i would perhaps be less biased against hedged ETFs…
I’m with you on that. However, I don’t think VWRL CHF is hedged (might be wrong), rather a running conversion in CHF of the USD fund, probably at an expense charged to the owner but that I can’t materialize. Know of any way I could find this info?
vwrl is not hedged. Vanguard doesn’t offer any hedged ETFs in CHF, Ishares does. If the ETF is hedged, it would be in the ETF name, for exemple “iShares MSCI World CHF Hedged UCITS”
Hedged ETFs don’t have any impact if you hold them long term, except reducing your return because of higher TER.
vwrl and VWRD track the same index " FTSE All-World ".
I currently use Swissquote and I’m also looking for another provider.
The one at the top of my list are:
Schwab, interactive brokers and Degiro
I still waiting for some answer to have the best one.
Honestly, it quite hard to understand and take into account all fees to do cost simulations. Forex fees are often hidden.
In the meantime some fellow Mustachian bought this on SIX just before close (30 + 23 units @ask price 72.09 after the whole day still…).
Total of the day is 553 exchanges. Compared to other markets (Euronext 3’468 in EUR and LSE 29’067 in GBP / 2’467 in USD), on SIX it’s really illiquid…
Do you Mustachians buy this on SIX ? With which strategy (wait 'til midday and then place a limit near the lower ask ?)
I post this here 'cause it’s linked to the topic.
I’m with SwissQuote now and was thinking about beginning buying distributing Vanguard ETFs.
As we discovered, dividends for these ETFs are in USD -> If I buy on SIX I’d have to convert them back in CHF in order to buy new shares.
I called SwissQuote support center to ask about currency conversion spreads. They told me that moving money from the USD “account” to the CHF one has a cost of 0.95% (which seems to me quite high…).
Can someone confirm this based on his experience ? This might be another reason to consider buying on LSE (which on SwissQuote, considering the range 2-10k, seems to cost 25 Pounds instead of the 9 CHF on SIX). With the current exchange rate USDCHF, moving say 6k @0.95% would cost ca. 57 CHF…
Thanks a lot for this info. I was not aware that the % was so high and nothing is stated under fee on their website. I have called Swisquote and told me that CHF<->USD was 1%. I will check what other brokerage firm apply.
As we discovered, dividends for these ETFs are in USD If I buy on SIX I’d have to convert them back in CHF in order to buy new shares -> I can confirm that
For a real life example of conversion with cornertrader, the dividend received on the 30th of december 2016 were converted at a rate of 1.01817 CHF/USD.
Regarding the trading volumes, one option is to buy/sell 50’000 shares or more each time so you can negotiate directly with an AP
For smaller “traditional” transaction my understanding is that whether you buy on SIX or LSE, the fund VWRL is the same (if you look for instance there https://www.vanguardinvestments.se/portal/instl/se/en/product.html#/fundDetail/etf/portId=9505/assetCode=equity/?overview, the fund is described as being available in four currencies). And I suppose that SIX is able to buy to LSE when you want to purchase some. (Or that a high frequency trader see the cost difference opportunity and does it for them) So I guess that the spread shall not be influenced too much by the volume of the market on which we buy. But that’s pure guesswork.
The CornerTrader conversion seem quite good. Even if we take the daily max (1.0231) it’s 0.48%. With the close price (1.0183) it would be only 0.13%.
Would be worth it to open a specific post about this currency conversion theme !
The good questions would be:
What it the exchange rate apply by Vanguard on ETF traded on SIX ?
ETFs are not stock, does it really matter to have a liquid market ?
I suppose the exchange rate from Vanguard is better than the broker.
I think it’s a bad idea to fund your account in CHF, buy a fund in EUR or GBP which has USD has index currency.
Moreover, trade ETF on SIX is cheaper on Swiss broker than on other exchanges.
@wapiti: I agree, buying in EUR or GBP, with CHF, for a USD-underlying fund sounds the worst ever. I would stay away from that. My question was between:
- VWRL, an ETF in CHF @SIX with USD-underlying currency (and apparently no hedging), the nice thing here is that it’s cheap to buy when I’m with a Swiss broker,
- VWRD, an ETF in USD @LSE but for which I need to do the exchange CHF to USD before I buy shares, and for which fees are pretty high. But I have the real thing instead of having an intermediary currency.
I don’t understand your remark re. liquidity: how is it not important for it to be liquid? I need to be able to actually buy the fund, and if possible with the biggest volume the fund offers, which will then mean that the spread is small (even if the correlation between volume and spread is not a law of nature, I agree).
Isn’t an ETF a… fund? Meaning that if you buy/sell the ETF, your counterparty is the fund itself? In that case, I would not say liquidity is an issue…
an ETF is managed by a “market maker” that ensure that every time you want to sell (at the right price or with a market order) you will have a buyer
There is for sure a market making (the “ET” part of an ETF) but at the end of the day it is still a fund. Which should mean that your share of the fund is equal to the Net Asset Value per share of the ETF.
Generally these funds (especially the ETFs) are obligated by the market authorities to publish daily the current NAV of the fund. So for a potential buyer/seller there is little interpretation to what should be the right price of the fund share.
People can exchange between them their shares of the ETF but, in the end, what goes in/out of the fund is the sum of all the buyings minus all the selling.
So in the hypothetical case where you could not find any other third party who would be willing to buy/sell your share in the ETF, I don’t see why the fund itself should refuse the subscription/redemption.
The good thing about ETFs is that because they are listed on the market, they have more public penetration which leads to less fess thanks to economies of scale (plus, passive decision about what to invest in). But at the end of the day they are still a fund, right?
I have to give in that so far I could never imagine a case where nobody would want to buy/sell their share of an ETF. I’d be interested if someone has more material. One of my former clients was Lyxor, a big french ETF issuer, and I thought that I had a pretty good idea of what is an ETF. But I have to concede that I never thought about what happens when you have no counterparty for an ETF order.
I had (have ?) the same concern about liquidity. Anyhow, given our Mustachian approach (buy to keep and sell in xx years to finance our FI) and the number of shares we are going to buy each time, also considering the fund total volume (1’100 Mio USD) I’m not sure if the current number of exchanges per day will really be an issue or not.
In the meanwhile (since the beginning of the discussion) I’ve opened an account at Interactive Brokers and bought some VWRD on LSE (until mow three times, each time 15-20k). Each time I’ve been executed in one or two hours…
Hope this helps.