Overweighting Swiss assets for currency risk

Some authors (e.g. Andrew Hallam) write:

Americans should have a nice chunk of US exposure if they plan to
retire in the United States. Canadians, Australians, Brits, Europeans,
or any other nationality with an established stock market should do
likewise with their home-country market.
Keeping it simple, you could split your stock market money
between your home-country index and a global index.
For example, a 30-year-old British investor could have a portfolio
consisting of 30 percent government bonds, 35 percent global stock
index, and 35 percent British stock index.

TLDR overweight the stock market of the country you will retire, so as to decrease currency risk.

I would like to challenge this passage and gather what the community thinks about it:

  • larger companies are often not fully “local” - they tend to operate globally - meaning that we would still getting some currency risk, see also this comment by @glina
  • by overweighting local markets, we lose diversification benefits

I thus have two questions:

  1. Should we all overweight the Swiss stock market?

The situation is different for bonds: for them, we have interest rate parities and what not, so by investing in local bonds, or in global bonds and then converting back, returns are not affected in the long term. And temporary currency fluctuations can be dampened by hedging. So, the points raised above by the author do not apply.

  1. Right? Or should we actually only hold Swiss bonds, if the plan is to retire in Switzerland?

I think Switzerland is a bit a special country when it comes to that. A very small country with a few huge global companies that are concentrated in a few sectors (health care, financial sector, food sector). So by investing in the common indices (worst in terms of concentration is SMI, but SPI is not much better) you just overweight these sectors (and a few individual companies). Moreover, some of these companies have many of their expenses in CHF, but not their revenue, so you do not really decrease currency risk.

I considered building my own portfolio that is focused on companies which earn the majority of their revenue in Switzerland (therefore decreasing currency risk). But I went through all SPI companies and there are only a few (roughly 20) companies with >50% revenue in Switzerland. Those are mostly banks, insurance companies, real estate companies, and a few other ones (Swisscom, Zurich airport, Orell FĂĽssli). So such a portfolio would also be very concentrated.

I guess a problem is that many of the companies that earn most of their money in Switzerland are not publicly traded. For instance Migros / Coop (with almost 200,000 employees combined) or all SMEs that employ 2/3 of the working population.

Interest rate parity should hold in the very long term, but in the short to mid term, it may not. This can increase the volatility of your bond portfolio, which may be undesirable.
Something to keep in mind is that hedging typically does not mean that returns are equivalent because there is usually a duration mismatch. A hedged bond ETF normally uses 1M currency forwards for the hedging, but the ETF may have a much longer duration. If the yield curve of CHF and the foreign currency develop differently, the hedged ETF will not have the same return as a comparable CHF bond portfolio. This was well visible last year where CHF hedged bond ETFs with a long duration had a relatively poor performance (because of the increase in US long term rates) whereas Swiss bond ETFs performed very well (because of the decrease in Swiss long term rates).

Because of those considerations, I personally only invest in Swiss bonds to decrease the volatility of my bond portfolio.


There is another factor to consider that is portfolio composition few years before retirement and during retirement.

Ideally during retirement you want to have part of your living expanses covered by bonds so you don’t need to touch your equity capital in case of fluctuations. Then bond part has to be CHF denominated in my view.

During the final years of accumulation, before retirement, if you want to reduce the currency risk so I’d gradually shift towards more CHF denominated.

Question about accumulation phase. I try to keep 20% of my investable assets (SPI) plus some cash in CHF, while the rest in global stocks. I don’t like the SPI concentration and I wouldn’t like further concentration even at reduced currency risk. The assumption I am making is that USD as world currency importance will stay as such over the next 20-30 years. It may be or not be the case. For sure I’d not to overweight in any other smaller country currency (GBP). I am aware that I will lose of the USD gains when translating into CHF but as long as it’s giving me a surplus when translating into CHF or at least parity but at lower concentration risk I am happy.

Well done for the great post. These questions asked repeatedly on the forum

Many have more expenses in CHF than income in CHF. You INCREASE foreign currency exposure on your portfolio by owning them, in comparison to owning a non-swiss based based company.

There are other benefits to owning swiss companies beyond FX:
-invest in what you are familar with know best
-participate in local economy (don’t get left behind if there is a boom and exploding real estate prices à la San Francisco)

I think we should not mix two things

  1. Home country bias (home exposure to equities) is often recommended to be around 30-35%. Of course US is different because it’s very large market.

  2. Equity vs bonds -: this is more about risk tolerance and volatility and not much about home bias in my opinion

Regarding home country bias -: there are many factors at play

  • currency
  • tax treatment
  • protection is terms of crisis
  • familiarity
  • maybe more

Global diversified stocks are considered most optimum but they don’t include factors mentioned above.

The concentration of SMI is high because of top 3 but this problem is not unique to CH. Most likely such situation exist in many large cap indexes around the world

  • nifty 50
  • FTSE 100
  • Nikkei 225
  • Denmark index
  • and now US market is also very concentrated

I think the winner takes all and big gets bigger narrative is driving concentration.

Personally I only have 10% CH stocks but I also have 10% India. So I am kind of 20% biased. I also think that we should keep in mind, most people invests in local markets. Some due to restrictions, some due to confidence and some simply due to taxation issues.

Side note -: from retirement perspective, there is a recent study which kind of challenges the bond narrative for “safe” retirement. It says global diversified stocks portfolio might perform better. This is new research so let’s see how fund houses react

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“Debunked” here by bigErn

This article completely fails to actually critique the content of the study and instead just attacks it with a pre-conceived bias. Like nost of the articles critiquing the study.

They fail to adress the actual findings of the study.

I like and follow the RR fellas for years now.

But what works well in theory and statistics will not work well in real life with irrational humans and their emotions.

I would never (even if I could - and no one likely can, given their 2nd pillar nature at least) go 100% stocks.
Especially not so during retirement, when there’s little chance to replenish the funds if you get a crap stream of return years.
Don’t need that risk, so won’t be taking it.
Even if stats claim the opposite.

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I think he wrote more about it here: