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

1 Like

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.
1 Like
By reading and partipating to this forum, you confirm you have read and agree with the disclaimer presented on http://www.mustachianpost.com/
En lisant et participant à ce forum, vous confirmez avoir lu et être d'accord avec l'avis de dégagement de responsabilité présenté sur http://www.mustachianpost.com/fr/