But my point is clear, right..?
Right..?
UCITS ETFs are generally a safer wrapper for EU investors, but I think the risks of synthetic ETFs deserve more attention. In a synthetic UCITS ETF, you are not directly holding the underlying stocks; instead, you rely on a swap contract to deliver the index return. That makes the important questions: how strong is the counterparty, what are the exposure limits, how good and liquid is the collateral, and how often is the swap reset? UCITS rules reduce these risks, but they do not eliminate them.
If your goal is the lowest structural risk, physical UCITS ETFs are usually the simplest choice. After that, the trade-off between US-domiciled ETFs and synthetic EU ETFs depends on the total package: structure, tax treatment, diversification, product availability, and costs. In the end, it is not just about the headline fee - it is about the full risk-and-cost profile of the portfolio.
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I agree with your concerns about US broker/ETF issuer etc.
I agree that nowdays holding UCITS ETFs with a european/Swiss broker will have minimum economic impact. (I am even âOKâ with stamp duty, not recoverable divident tax, higher spread etc)
I donât know anything about synthetic ETFs. In fact I know little about physical ETFs
If it turns out that synthetic ETFs are a good alternative then great!
I like this thread because I learn something new - even though admittedly your messages some times are a little bit harsh and you kind of causing others to be harsh
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Just to clarify the debate with numbers: VT tracks the FTSE Global All Cap benchmark. VT, on average, underperforms the gross benchmark (i.e. the benchmark in its purest form, before withholding taxes are paid) by 20 bps.
VWCE tracks the FTSE All World benchmark. It is a different benchmark. VWCE underperforms its gross benchmark, on average, by 55 bps. Apples-to-apples, VWCE is/has been 35 bps more expensive. It is primarily due to 1) a higher TER; 2) different withholding taxes (VT does not pay withholding tax on US dividends, among other differences); and 3) inefficiencies inherent to UCITS.
So, long term, you may expect the underperformance of VWCE to be in the order of 35 bps, assuming equal return of the two benchmarks. Over 20 years, your terminal wealth is expected to be 7% smaller with VWCE than with VT.
Having said that, it does not mean that you have to dump VWCE for VT. Those 35 bps might be worth paying for a better domicile (no hassle with the IRS for your heirs is important, as is the fact that UCITS spares you from monitoring US legislation). My point is simple: make a clear argument, without comparing apples to tractors.
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Thanks a lot for this clarity!
Do you have an idea if the three factors contribute equally to the difference in bps? Or does one of the three factors stand out?
I would love to hear @afstandâs reply.
My assumptions:
TER diff = 13bps
Div taxes = ~10 bps as calculated by forum members in the past
UCITS inefficienices = 12bps? I wouldnât know anything about that
VT:
TER: 7 bps (they reduced it relatively recently to 6 bps, so for historical data I would still use 7 bps).
Dividend withholding is around 12 bps, as reported.
VWCE:
TER: 22 bps.
Dividend withholding is around 25 bps (very close if you assume a yield of 2% and a 12â13% aggregate tax rate).
VWCE loses some 8 bps somewhere (maybe even 9 bps if you take into account securities lending income of 1.3 bps). I assume this loss is more intrinsic to Vanguardâs UCITS implementation than to its US ETFs, where shares are exchanged in kind, whereas UCITS creations/redemptions may be mostly in cash.
It is not an exact science, as the dividend yield is variable. Especially after such a strong bull market, it is now less than 2%, closer to 1.6%. But the big picture should be correct.
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Would be nice, but no. If you could see from the share price that the company is going to be bankrupt, before they are actually bankrupt, then the share price would already be 0.
Look at the stock price charts of brokers, then tell me a rule you would use to withdraw your money. I doubt you will find something that will let you pull out before it is too late without exploding costs from false alarms.
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It doesnât always have to be some extreme all-or-nothing move. The downside with US ETFs is that you gotta report to the IRS and file two forms. Processing takes a few months, and if your heirs arenât up to dealing with it and need to bring in a lawyer, that adds extra cost too. Upfront, obviously.
Itâs not like this is a 100% or 0% ETF decision. You can just as easily accumulate both VT and the future UCITS version, say on a 40/60 split or whatever ratio works for you.
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Are there actual reports about this process and the threshold on IB and Saxo/Swissquote?
If we take the difference in bps as suggested by @afstand this could easily cover the cost of lawyers (I assume thatâs around CHF 1000 - 2000). Also, if you have a complex inheritance, a lawyer is usually included anyway, making the additional cost for potential IRS filing even smaller.
Common sense is merely a rule inside your head
The duration of IRS processing is rather years, than months. The IRS Transfer certificate filing requirements for the estates of nonresidents not citizens of the United States | Internal Revenue Service writes
The time frame for the IRS to process the affidavit and supporting documents is 12 to 18 months from the time the IRS receives all necessary documentation.
I could not find much information about the current processing times, it may indeed be from less than a year to much longer periods https://www.reddit.com/r/tax/comments/191yl3t/706_now_being_processed_within_18_months_good_sign/
The thing is that my wife is not interested in investing at all, and it seems to be typical for our cohort of investment nerds. So the US ETFs present a potential bomb for your surviving spouse or children, who would need to understand then what they inherited, and what to do with it.
Apart from the costs of hiring international tax consultants, it is hard to put a monetary value on it.
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You need a rather specialized one and tax lawyers have hourly rates of around CHF 400. You also need to have notarized the values of your entire estate. My estimate is 10k for a simpler situation.
IBKR apparently blocks the whole account until the IRS confirms that you have fullfilled your obligations.
I recommend against dying holding US etfs in your hands or accounts. Until then, I do not realistically see a big problem.
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@afstand and @Strabor I hear and read you.
Still, the most trustworthy information at this point comes from the articles of MP and the Poor Swiss. I feel these two articles are well researched and written with certain standards that come close to journalism.
On the other hand, I have not (yet) found an article with a similarly trustworthy degree that claims the opposite and recommends against investing in US assets. Similarly, I also have no knowledge of an experience or an article that quotes a Swiss example of USD 10â000 fees for lawyers, complex processes and year long waiting period.
These two factors, the high quality articles of MP and the Poor Swiss as well as the absence of testimonials or articles about the actual difficulty of getting assets back from IB, make me still trust that US ETFs and IB are a safe bet with one of the best possible performance.
Sorry to dash your hopes, but you have no idea how much a Swiss lawyer charges to handle this kind of international issue.
For example, when I was a trainee lawyer in Geneva specializing in divorce law, my supervising attorney charged a flat fee of 5,000 CHF for a divorce. That included an initial consultation, drafting the petition, preparing the list of evidence, filing with the court, a few exchanges of pleadings, and a few court appearances. The bill could quickly rise to 15,000 CHF.
Itâs important to note that the hourly rate for a lawyer in Geneva is 450 CHF per hour, excluding VAT and attorneyâs fees. Thatâs for a run-of-the-mill lawyer. If you hire a lawyer specializing in international tax mattersâoften a lawyer at a major, well-known law firm in Switzerlandâtheir rate is likely to exceed 800 CHF per hour, excluding VAT and attorneyâs fees.
In Fribourg, the hourly rate is 280â300 CHF, excluding VAT and attorneyâs fees.
Therefore, your estimate of 1,000â2,000 CHF to settle a potential case with the IRS is unrealistic. You should instead expect a minimum of 10,000 CHF, if not more. Especially since the Swiss lawyer representing you will need the assistance of a colleague in the U.S. (who will likely be more expensive). If, by chance, you happen to find a Swiss attorney who specializes in international lawâparticularly U.S. lawâthen the bill is likely to rise even further, as these attorneys are often affiliated with well-known Swiss law firms (such as Lenz & Staehlin, Schellenberg Wittmer, Homburger, BĂ€r & Karrer, etc.).
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For a consensual divorce (but with kids, shared property, pension funds outside Switzerland and a few other quirks), we ended up paying 9k each (in 2021, Geneva)
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To be in this kind of troubles, one must be dead, good luck finding testimonials
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Since a lot of people are trading/holding US shares I am surprised, I never heard about a real case.
I am not sure, if people are even paying this tax unless you self-declare that?
When opening a joint account on IBKR, one can just transfer the assets without any special confirmation needed.
I think most people simply instruct their spouses not to inform IBKR about the death and to sell or transfer the US equities. It is illegal and carries some risks, however.
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But if you do the transfer together with your spouse, 1 hour before dying, then it should not be illegal.
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