Made some rebalancing.
VIAC (24k)
30% World ex CH
30% SPI Extra
20% EM
17% SMI
ValuePension (22.5k)
80% World ex CH
19% EM
IBKR (33k)
100% USA
78.5k invested right now (-1k for cash at Viac/VP), so in total:
55k USA (63.6%)
11.3k CH (14.4%)
9.1k EM (11.0%)
9.1k Developed (11.0%)
So I updated my portfolio to use Avantis ETFs with a small cap value tilt.
Morningstar style box (VIAC+Finpension is approximated with VT):
Taxable:
| Ticker | Name | Weight |
|---|---|---|
| AVUS | Avantis U.S. Equity ETF | 24.4% |
| AVUV | Avantis U.S. Small Cap Value ETF | 29.9% |
| AVDE | Avantis International Equity ETF | 12.8% |
| AVDV | Avantis International Small Cap Value ETF | 20.1% |
| AVEM | Avantis Emerging Markets Equity ETF | 12.8% |
Reference is MSCI region weights. Small cap value is 50% of the whole taxable portfolio. Cost is 0.26% per year.
VIAC+Finpension
| Region | Allocation | Fund | Allocation |
|---|---|---|---|
| Switzerland | 22.8% | CSIF SMI | 15.8% |
| CSIF SPI Extra | 5.9% | ||
| CSIF (CH) Equity Switzerland Small & Mid Cap ZB | 0.4% | ||
| CSIF (CH) Equity Switzerland Large Cap Blue ZB | 0.7% | ||
| World | 32.6% | CSIF (CH) III Equity World ex CH Blue - Pension Fund ZB | 28.7% |
| CSIF (CH) III Equity World ex CH Small Cap Blue - Pension Fund DB | 3.9% | ||
| North America | 22.4% | CSIF US - Pension Fund | 21.1% |
| CSIF Canada | 1.3% | ||
| Europe | 7.6% | CSIF Europe ex CH | 7.6% |
| Asia | 4.5% | CSIF Pacific ex Japan | 1.7% |
| CSIF Japan | 2.8% | ||
| Emerging Markets | 10.1% | CSIF (CH) Equity Emerging Markets Blue DB | 4.0% |
| CSIF Emerging Markets | 6.1% | ||
| Total | 100.0% |
Here is my global weighted average portfolio that I am starting with this year. Interested in your feedback 
50% - SWDA - iShares Core MSCI World UCITS ETF
22% - EIMI - iShares Core MSCI EM IMI UCITS ETF
8% - WSML - iShares MSCI World Small Cap UCITS ETF
20% - AGGH - iShares Core Global Aggregate Bond UCITS ETF
Goal is to rebalance on bear trends, selling bonds and buying more stock.
Why eur hedged, and what’s your expected return? (Looking at same risk bonds in eur, I’m not sure it’s positive, besides the fx volatility for eurchf)
Just because all other ETFs I buy are bought in Euro, since the european exchanges have better volume in Euro. And such bonds, in case of bear markets, tend to have the least fluctuations, even to slight appreciate (although not guaranteed).
That’s not a very compelling argument…the currency you use to buy stock ETFs as explained multiple times is not very important.
If you live or plan to live in a EU country then it can make sense to hold EUR-hedged bonds. If you plan to stay in CH though the EUR-hedging would most likely add cost while also increasing volatility.
As I said, bonds will be used to balance the portfolio for above market average gains. The portfolio I made is focused only on accumulation. What would be a better bonds alternative if considering retirement in CH?
Cash might more stable with higher returns than equivalent bonds (at the moment, might change at some point). That works great for rebalancing.
Meaning all 20% allocated to bonds to be kept in cash. I thought of that, indeed. But not sure what is the best way.
You might want to consider US bonds instead such as USD treasury bonds if you don’t mind too much having USD ETFs. Yield is at least not negative for US bonds…
There’s higher risk though, and probably more correlation between corporate bonds and equity markets.
In general the theory is that the expected return after hedging should be the same as the equivalent return in bonds denominated in the hedged currency.
So expected yield of non-sovereign USD bond after hedging should be similar to expected yield of corporate CHF bonds of similar rating (which is barely above zero?). The main advantage of global bond hedged will be some extra diversification.
edit: and need to keep in mind what your goal is, usually that’s having a less correlated asset class, so if you’re increasing the yield but increase correlation with equity that might be detrimental to the overall portfolio.
Agree regarding the higher risk… then regarding the correlation this is the reason why I would go for US treasury bonds (VGIT or VUTY.AS) which even has a negative correlation when compared to a world equity ETF like VT. See the correlation matrix below from portfoliovisualizer where I also added global bonds ETFs such as BND/BNDX/BDNW for comparison.
So maybe for less risk one should go for a global world bond ETF such as BNDW but then the correlation is higher with VT as the correlation VT<->VGIT.
But then US treasury bond have the same expected return as CH sovereign bonds after hedging (so pretty deeply negative). (and unhedged, it kinda defeats the purpose for people with no tie to the US due to the volatility, my understanding is that long term through interest rate parity even unhedged you’d expect same CHF return as the hedged one anyway, just with a lot more variance).
I don’t quite understand why a US treasury bond would have the same expected return as a CH government bond? For instance the 10 year treasury interest rate is at around 1.5% (Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis (DGS10) | FRED | St. Louis Fed) whereas in Switzerland it is more around 0% as far as I have heard (source missing). But I don’t have much clue about bonds, so I am asking here to understand better the differences…
That’s Interest rate parity - Wikipedia, the difference in yield should match how the currencies will evolve long term.
So long term the returns should be the same when denominated in CHF, except with a lot more volatility due to short term FX.
That’s why the recommendation is to always hedge bonds in the local currency (https://www.institutional.vanguard.ch/portal/site/institutional/nl/en/articles/research-and-commentary/portfolio-construction/the-case-for-hedging-currency-in-global-bonds), esp. since the goal of bond is to remove volatility from the portfolio.
But then when you hedge, at least the theory says you should expect the same return as the equivalent bond in the target currency (cost of hedging is the delta between the risk free rate in CHF vs. USD).
So that being said I could conclude very simplistically that there is no point going for US treasury bonds I could simply go for CH gov bonds because on the long term both should result in the same “performance”. Which I would not do anyway because CH gov bonds don’t have an interesting yield, or are or may be even negative as for European gov bonds. Is this sort of correct?
If I understand correctly here the ideal case would be to get a global bond ETF such as BNDW (includes BND+BNDX) but the catch is that it is not hedged to CHF. Such a product does not seem to exist or at least not from Vanguard… Does such an global bond ETF hedged to CHF exist at all?
Are you employed and did you count your current and future 2 pillar in your global allocation?
I have more of my global nw in low yielding bonds than I would like due to 2P. Balances accumulate as you get older and difficult to reduce % bonds in most cases
But as mentioned, my understanding is that the expected returns are likely negative or close to 0 (esp. after taking into account TER).
There are some vanguard mutal fund e.g. IE00B2RHVR18 with 0.15% TER, but the entry ticket is like 100k afaik.
edit: last time I looked seemed like entry ticket was 100k, might have gone up to 1M now
Vanguard LifeStrategy 80% Equity has two “flaws” from what I notice:
Thanks for the pointer to AGGS, the TER of 0.10% is not so bad but the AUM is only around CHF 148m which seems a bit small. Nevertheless if I understand you correctly you are saying that even though AGGS is a global bond ETF including the whole world the expected returns will be negative or close to zero, how is this possible? I mean I don’t think even half of the countries of the world have negative interest rates.
But yes you must be right unfortunately because the total return (%) under the performance section mentions 0.2% for the period of march 2020 to march 2021. As you mention this could change in the future, but negative for a global world bond, is this possible? Because if yes there is really no point having bonds and I am close to giving up on bonds…
