Home bias: how much CH for a broad diversified portfolio?

Hi there

Broad geographic diversification like Vanguards VT ETF is a good thing and my favourite. I stumbled accross this paper https://www.google.ch/url?sa=t&source=web&rct=j&url=https://www.vanguardinvestments.dk/documents/consideration-global-equities-ch-tlor.pdf&ved=2ahUKEwjWwZTvseXoAhXR2KQKHfwFCUoQFjADegQIAhAB&usg=AOvVaw0JzRkNbVolmEfRSvqkvuBm which states, that having about 40% of CH stocks in your portfolio, reduces volatility by 1.5%…
What is your strategy?

From the paper page 6: “Holding all else constant, increasing the portfolio weight for Swiss equities exposes an investor to higher volatility than that for the entire market. Therefore, a Swiss overweight implies embracing additional volatility without necessarily gaining any expected return.” Have we read the same paper?

Correlations with MSCI world has increased over the time which means that an overweight of Swiss stocks has less impact than in the past.
Between 2009 -2020 the correlation was 0.93 https://www.portfoliovisualizer.com/asset-correlations?s=y&symbols=EWL+VT&timePeriod=4&tradingDays=60&months=12

You also need to take into account the other advantages of a global portfolio: company diversification, sector diversification

Market cap weight would be 2.6%, but I keep it at ~15% overall (IBKR+VIAC) and reduce my allocations to Europe and Pacific to keep the US and Emerging Markets neutral.

Right, like Cortana said trough pillar 3 and pillar 2 you will automatically overweight CH

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And you can adjust your CH allocation in VIAC from 37-90% (assuming we aren’t using CHF hedged funds). So that should give you enough range to get your desired home bias.

yes, but 37% is still bigger than 3% ?! :slight_smile: I don’t want any home bias (if possible)
This limit is more harmful than useful.

Well then you have 2 possibilities:

  1. Save so much that VIAC only accounts for 8% of your total investable assets. So that by setting VIAC to 37% CH you’ll get 3% CH allocation.
  2. Use CHF hedged funds in VIAC to reduce Switzerland to 3% (2% SMI, 1% SPI Extra).

I got the point, but I would like to give these two counterarguments:

  1. Higher salary would mean higher pillar 2 contribution, so the overweight will stay through pillar 2.
  2. Hedging is worse than home biais
  1. I see 2nd pillar as bonds, so no overweight in terms of stocks.
  2. Agreed.
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I would like to reactivate this thread about home bias (CH) in equities.

Let’s forget 1. and 2. Pillars as i consider them to be bonds.

Firms are globalized and do business all over the world in various currencies and I get it that overweighting CH equities will reduce geographical and sector diversification, hence increasing risk.

I also read that over the long term (investing carrier) it is not worth hedging to home currency in equities. But the articles were not talking about chf.

On the other hand i also read that chf is a strong currency, and considering eurozone / usa debts, chf will get even stronger.

Chf getting stronger than usd/euro slows down my portfolio.

Should a swiss investor do home bias in equities and if yes how much?

I am considering to massively overweight CH (or even exclusively invest CH) in 3a (using SMI + Spi extra it is possible to get a well diversified portfolio) but limit my home bias to max 20% of my equities portfolio (3a + VT).

What about you?

20% will not suffice. Unlike „ordinary“ Home Bias, the CHF is a safe harbour currency and Swiss shares have a heavy weight on conservative Sectors. This implies a certain downward hedge. As long as you re-balance, Swiss Shares will help you to sustain a crash.

In between Crashes, we still have the situation that Swiss shares beat the NSCI World. Dont ask me why, this might be a matter if the polutical stability we experience here? So they are not only an investment in bad times but simply anytime.

In addition to this, unlike foreign shares you neither lose in explicit nor implicit FX cost and there is zero Withholding Tax loss. This in my view justifies about 25 to 30% if Swiss Shares.

Same applies for hedging, its generally a bad idea but given the nature of the Swissie as a safe harbour currency, it actually as well pays off to hold a certain amount of global shares with a CHF hedge. Know that doesnt quite sound logical but empirically, there is Value. BUT if you hold FX hedged Shares you should re-balance at least quarterly if not Monthly. If you can do so, it may as well make sense to hedge about 5 to max 10% of your Shares.

So how about 25-30% Swiss Shares, 5 to 10% Hedged and the Rest just Global shares?

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Thank you very much.

I try to have the simplest portfolio because i know i would not have the nerves to always rebalance.

So VT (and later bonds) is the safest choice for me.

On the other hand i realized i am absolutely ok with staying the course in 3a, as it rebalances automatically.

So i think i will do home bias in viac and finpension: 20% SMI, 20% SPI extra, 10% swiss REAT, 10% EM and 37-39% Msci World.

At the end i will not have a big (enough) ch bias in my overall portfolio, but that is ok for me. Maybe later i will buy SMI and SMIM via Ibkr.

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That’s at least for as long as the pension institutions manage to cover their liabilities under the high conversion rates. If there is a severe downturn, we may have to bear the risks of stock exposure even though we were not compensated with returns.

I keep my fingers crossed that we manage to find a solution for keeping pillar 2 viable.

I very much like your argument and am thinking about overweighting my CH allocation towards 25% just because of the strong currency that is CHF.

Like others in this thread I‘m looking at 2nd pillar as bonds. What ETF are you using or does it make sense to mainly do it through VIAC (although there I don‘t have enough to make 25%)?

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