Impact of currency exchange rates on your portfolio

Investing / Portfolios
112

I have to disagree here.

First, the quoting currency of an asset is irrelevant. If you have enough CHF to buy 1kg of gold, you can exchange it to EUR or USD before buying, you will still own … 1kg of gold.

Second, hedging that fully irrelevant quoting currency is not logically sound. There might be some correlation for the value of a company and the value of a unit of currency. But this correlation is not very high.

Third, instead of buying a hedged ETF, you can buy an ETF and some FX futures. The result is the same. Trading FX futures can make some money. But the expected return for buy and hold is 0 (minus expenses).

So why would you buy this long-short product? You hold neither side in your portfolio. Can you perhaps predict the future better than others?

What would make logical sense, is to hedge your future expenses in CHF against the return of your portfolio. So long CHF short portfolio. You could do so with a combination of futures.

For eliminating the risk of your portfolio you also eliminate its return and gain the security of CHF with the return of CHF. Just sell your portfolio and hold (bond laddered) CHF. The result is the same.

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113

TLTR, is VWRL in CHF (with USD dividend) still the way to go long term?

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114

Off topic, but I must ask: what do you do with the dividends ?
Do you convert them back to CHF and buy more VWRL ? Or do you use them to buy VWRD ?

115

Switch back to CHF asap, using them in the next VWRL buy.

Im not holding USD

116

I want to highlight this answer. After few years investing, the exchange rate is the most important thing about investment. I had some winnings picks on the last years, but they where in losses due to the exchange rate. Other picks I had at the end 0 or nearly 0 CHF gains, because the position was for example 5% and the exchange rate -5%. In the last few years, I don’t recall any single position which I made some gains due to the CHF rate.

So, don’t be fool by amazing returns, like 10% or 15% per year, if you are doing -10% or -15% on the rate. CAD and GBP were the worst on my experience. CAD right now has done -13% in 2 years for example.

People has to understand that every single website and information on internet is for US investors with USD base account. Why bother to look for 10%-15% return per year on a stock when you are doing -10% on the exchange rate? As a swiss investors, it’s better to invest on stocks or ETF in CHF, unless you are Michael Burry and can make 30% on a stock in 3 months.

The longer you hold a stock on another currency, the worst, and the buy and hold is the strategy that every single amateur investor should follow.

Some people may argue that the CHF will not go up forever against other currencies, and it’s true. But what we have seen till now, during the 2008 crisis, the CHF went up and then it was flat for a decade, but it didn’t go down to the pre 2008 crisis. That means, the chances tthat the CHF will go up or keep flat are higher than going down.

Degiro has the most straighforward UI to tell you that. When you use autoFX, you will see the PnL of the stock and the PnL of the exchange currency, they will also show you the realized PnL till now (even if you haven’t sold yet, there are already profits like dividends or losses like fees, taxes, etc)

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117

I didn’t quite understand what is the final conclusion from your research. Because buying a stock in any currency has two components in terms of return

  • return of underlying company
  • Return / loss due to foreign exchange

When someone invests in foreign stock, there is always a risk of foreign exchange. So if CHF appreciates, the so called “loss” is part of investing and should be expected.

So can you clarify, if one were to invest in World stock markets. What would be your conclusion?

  1. Invest in ETFs sold in CHF but are not hedged for currency like FWRA

  2. Invest in currency hedged ETFs like IWDC

  3. Just hold cash because CHF keeps appreciating

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118

Your thoughts and conclusions are rather simplistic to this topic (and wrong). Of course you should delve deeper. I recommend you read up and study more about stock investment, the currencies involved and their effect. This thread is a good start, but from the beginning. There are other threads too, as this is a regular “question”.

PS when you buy poorly performing stock like Nagarro, the currency effect is not your main problem. Everyone has bought crappy stocks, but if most of your stocks are performing poorly, you should re-consider your stock-picking skills and maybe try VWRL instead.

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119

You have a false premise.

Swiss stocks are not better just because they are listed in Swiss francs. The reasons are listed below.

In order to convince people on this forum you’d have to show that over the last decades Swiss stocks would have outperformed in Swiss francs compared to foreign markets, AND you have to be able to reason why this is likely to continue in the future.

  1. If you had invested in the NASDAQ or the s&p 500 in the last 20 years you would have had stellar returns, even though the dollar loses versus The Swiss franc by about 2% per year.

  2. Just because a stock is listed the Swiss stock market, does not mean it is unaffected by foreign exchange movements. Most of the big Swiss stocks derive most of the revenue from abroad, so their profit CHF are also affected by the moments of the currencies they pay their suppliers and earn their money.

  3. If you want it to insulate yourself from exchange rate movements as much as possible, you have to only invest in stocks or real estate where the earnings and expenditures are almost exclusively in Swiss francs. This would be the case for Cantonal Banks, real estate companies and maybe telecom. You might find insurance companies and a few others that work like this. Basically you are limiting your potential earnings by focusing on those factors. You also introduce a severe concentration risk and you are likely to lose out on a more balanced and more profitable portfolio. If you are going for the cash flow strategy, a focus on the above mentioned Swiss companies could be a useful strategy.

  4. As a rule of thumb you can take foreign returns and take away 2-3 percentage points per year to get the return in Swiss francs.

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120

My assumption of expected long term return on global equities in CHF terms is 3-4 % on top of inflation. So I think 10-15% is not right assumption over a long term. In fact Vanguard CH is predicting only 1-3% returns from global equities. Read here

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121

I grabbed some data from SIX, MSCI, SNB and LIK and calculated average returns for the last 20 calendar years, from 2004 to 2023, converted to CHF and also adjusted for inflation.

2004 – 2023 Ø p.a. Ø p.a. (CHF) Ø p.a. (CHF, real) total total (CHF) total (CHF, real)
SLI TR +7.23% +7.23% +6.66% +304% +304% +263%
SPI TR +6.73% +6.73% +6.17% +268% +268% +231%
SMI TR +6.68% +6.68% +6.11% +264% +264% +228%
S&P 500 TR Gross +9.69% +7.59% +7.02% +535% +332% +289%
MSCI World Gross +8.37% +6.29% +5.73% +399% +239% +205%
MSCI ACWI IMI Gross +8.22% +6.15% +5.59% +386% +230% +197%
USD/CHF -1.91% — — -32.0% — —
Inflation CH +0.53% — — +11.2% — —

Not what I expected to be honest…

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122

Which part was unexpected ?

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123

That in CHF, the Swiss market performed way better than the world market. Even when comparing the worst Swiss with the best world index, the Swiss index achieved 17% more returns each year.

Maybe I have to rethink my “no home bias” policy" :disguised_face:

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124

Ahh I see
Actually MSCI Switzerland has outperformed MSCi world as well as MSCI ACWI IMI since 1994. Data

But since Swiss companies have higher dividend yield, it could be that on post tax basis, it’s more or less very close.

For future - who knows what happens. :slight_smile:

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125

I guess not only in CHF but also in USD. Meaning that if you would be a US investor you would still have had higher return when going into Swiss market than world ETF? (provided you have low exchange rate fees and convert those CHF returns to USD in the end again)

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126

I would try to move the starting date 3-5-10 years forward and backward to see if the results hold before using them to ponder asset allocation.

That being said, Swiss stocks are of mostly good companies and the SNB has managed the exchange rates as best as it could to protect exports so I’m not overly surprized by the results. As stated by Abs_max, the share of the dividends in the total returns probably affect the after tax picture, though.

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127

Dont forget that we have zero withholding tax and ~10% of the dividend is distributed as capital gains, tax free. Might move the needle a little.

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128

I increased the time period to end of March '95 to July '24, but I only have data for SPI, SMI and ACWI IMI:

Mar '95 – Jul '24 Ø p.a. Ø p.a. (CHF) Ø p.a. (CHF, real) total total (CHF) total (CHF, real)
SPI TR +8.15% +8.15% +7.49% +897% +897% +732%
SMI TR +8.15% +8.15% +7.49% +897% +897% +733%
S&P 500 TR Gross +10.34% +9.34% +8.67% +1’694% +1’273% +1’047%
MSCI ACWI IMI Gross +8.05% +7.07% +6.41% +869% +642% +519%
USD/CHF -0.91% — — -23.5% — —
Inflation CH +0.62% — — +19.8% — —
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129

By the way, I am assuming to get to real returns, Swiss inflation is being used. Makes sense as investor here lives in Switzerland.

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130

To be honest, these results are very good irrespective of allocation. Almost 6% real return in CHF is great for world ETF. I wonder if such returns would be possible in future. Time will tell.

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131

Yes, Consumer price index:

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