So why not buy the AGGH euro version as I mentioned?
Aren’t they different share classes of the same fund with 4.9 billions AUM?
This is outside of my fields of proficiency, do the AUM of a share class really matter?
I think that if the volume on specific exchange / currency is small, the spread is bigger and in this case you might not be buying / selling at the best price.
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Those bonds have positive yield in their own currencies, but if you care about CHF you have to take into account hedging/fx moves. If a bond returns 10% in USD but USD depreciates by 10% against CHF you get 0% yield.
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depends how well market makers are doing their job, you can check the order book for that (it’s going to be a better indicator than volume which is just a proxy for spread).
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Aha, so in your example 0% yield in case of a hedged ETF and what about the same example but let’s say that ETF would be unhedged, would that give -10% yield?
If it’s unhedged it’s more volatile, so short term hard to predict. Long term interest rate parity likely applies and it becomes equivalent to CHF bonds (usd depreciates by the delta between the interest rates)
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Thanks again for explaining all these aspects of bonds, it is very interesting but confusing at the same time. To sum up there is currently no ideal bond ETF (global or not global, hedged or unhedged) which would bring us mustachians any added benefit over keeping cash at a bank in the actual situation right now because yield on Swiss confederation bond is still negative (e.g. yield on 10y Swiss confederation bond is at -0.2%). So we would simply need to wait that yield goes back into the positive area and hope it stays at least for some time there before considering any bonds…?
Precisely because it is in EUR and I earn in CHF. This means I would have to convert my CHF into EUR to buy and then back from EUR to CHF when I want the money, and this is not efficient as it incurs more transaction costs and FX costs.
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What if you plan to use the bonds for rebalancing? Let’s say stocks go down and in that case (historically happened, but not all the time) bonds go up. You could sell bonds high (in euro) and buy low ETFs (which are still in euro as per my portfolio).
Right that would work for your portfolio if you have EUR ETF stocks but my portoflio is mostly USD/CHF ETF stocks.
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It’s irrelevant for equity ETF, if you were to use USD or EUR or BTC or gold to buy the same stocks, you still end up with identical portfolio. So it shouldn’t (except if you’re on a platform with high conversion fees) impact your decision making.
If what you care is EUR and you track your net worth and returns in EUR it’s fine. If the currency you care about is CHF there can be some pretty wild swings short term due to fx changes (e.g. if you were holding EUR bonds in 2015, you just lost 20% of your “safe” portfolio overnight).
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- If you’re having hundreds of thousands in cash or bonds, bond ETFs would reduce the risk of your bank going bankrupt.
- You could look into riskier, lower-rated bonds, which have higher yields (emerging markets bonds, for example).
Keep in mind that rising interest rates lead to lower bond prices.
Good you mention, I was actually looking into VWOB… It’s yield is quite high with >4% but of course for more risk. Still the volatility of this ETF does not seem to bad or scary. Still less volatile than the usual equity ETF such as VT. Or do you have any better recommendations for an emerging market bond ETF?
Damn, you’re right again. There are so many aspects to think about with these bonds…
Well, if you’re willing to take more risk I guess you could just increase your stock allocation instead.
Keep in mind that these are still USD-denominated bonds (even if they’re emitted by emerging countries), the USD/CHF Fx should add some volatility on top of it.
Right, good point but then I don’t have any bonds I could sell to rebalance and buy more stock ETFs in periods of downturn… or I guess I should just always keep some cash on the side for that, but then again why not invest this cash directly in stock ETFs in stead of keeping it for downturns…
Indeed, I remember having calculated -10% for USD/CHF just for 2020, which is a lot if you consider it could continue on like that… of course if you keep these bonds in USD for rebalancing with stock ETFs then it does not matter much as @evertruelife pointed out.
I’d say first thing, establish your desired risk level.
If you can stomach 100% stock, just go for it, keeping cash on the side for downturns would just be market timing and not very efficient
If based on your risk appetite you’d prefer to only invest 80% in stock, than the rest should be in a “safe” uncorrelated asset. Historically this asset was bonds, but now that bonds give negative interests cash is a very good alternative.
I think it still matters, because it’s adding more risk…when the time for rebalancing comes the value of your bonds will also depend on Fx, and its anyone’s guess if it will be up or down at that point
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So gentlemen, to sum it up, what decent options do we have for bonds? Of course, usdchf fx fluctuations will always be a factor, but at some point it needs to be assumed…
I think the question is: why bonds? Did you run out of guaranteed cash account with no negative interests?
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Cause bonds do go up usually when stocks go down. And until stocks go down you buy cheaper and cheaper bonds and sell at the right moment.