Tilt on Value Factor with Finpension?

Hello!

Kindly asking for an opinion on the following. Is there a way to get a Value Factor portfolio on Finpension, considering the only fund available is CSIF (CH) III Equity World ex CH Value Weighted - Pension Fund (CHF hedged and non-hedged), where the allocations are different compared to a standard value factor ETF?

Please find below a comparison of top 10 positions.

  1. CSIF (CH) III Equity World ex CH Value Weighted - Pension Fund

vs.

  1. iShares Edge MSCI World Value Factor UCITS ETF

Also, is the above Finpension Value Weighted Pension Fund relevant for a Value Factor tilt?

Thank you for your opinion!

The value weighted fund has its goal in the name.

It‘s not entirely value focused, but it gives a lot more weight to value companies in its holdings, compared to its reference index the msci world.

It‘s purpose is to give you a moderately tilted value portfolio without huge tracking error.

1 Like

MSCI value weighted (VW) index is different from value / enhanced value factor indices. VW contains all the companies in is benchmark (just with different weights than market cap) unlike value or quality or min vol that have fewer components.

MSCI VW is a cousin of RAFI index.

You can read this thread we had on another forum to learn about it
https://community.rationalreminder.ca/t/rafi-fundamental-index-vs-msci-value-weighted-index/17846

The short answer is that it is value tilted

5 Likes

I’m just not very convinced by those slight tilts. Index hugging for higher TER. Comparing the indices with MSCI’s webapp:

Settings

grafik

EDIT: “WORLD ENHANCED VALUE” is a much stronger tilt. It had nearly 50% more total return over this almost two decades. Though, careful with indices. Their inception date is much later than the backtested data suggests.

1 Like

Can you please elaborate?

I think it‘s a nice option for someone not deep into factor tilting and as a majority holding in the portfolio. Most people can‘t handle much tracking error.

A nice lightly tilted 3a portfolio could also be 50/50 value weighted and quality. Value is premium is relatively anti-correlated to profitability (pretty much quality) premium

I would go by assumption that you are an experienced investor and well acquainted with factor investing I.e value , small cap etc.

In Finpension you would be limited to funds they offer. So I was wondering if you also have investments outside of 3rd pillar?

If yes - then maybe it would be best to keep your 3a with standard allocation and try to achieve value tilt in taxable account / brokerage.

This can increase your options.

Though in the case of value (high dividends), it would probably make sense to keep them inside 3a.

2 Likes

It’s a tricky question

3a will shield your income tax from dividends for time being but eventually you will need to pay withdrawal tax. Assumption here is that value stocks will outperform standard allocation. Hence the net return for value stocks should be more than rest of the investments.

So what would be better depends on following

  • withdrawal tax rate
  • dividend rate + capital gains return
  • overall return
  • marginal tax rate
  • wealth tax rate

You might be right but I think one should do the math.

Yeah, I agree. Like the counterintuitive result of 0% US withholding tax for pension funds. You can already get full tax credit for the normal 15%. So better prevent additional taxes where you can’t. The dynamic might change if non-3a Finpension manages to get tax credit on IE ETFs (and this will start to apply to dividends from all countries).

2 Likes

I think I’ll go for 64/35 allocation for value/ quality on Finpension. Note, I do also buy value/ factor ETFs separately with my broker.

1 Like

I do own these factor ETFs with my broker, yes. Factor tilting is just a part of my overall target portfolio allocation and with Finpension anyway just a small yearly amount that gets in here.

2 Likes

Reasonable and nice portfolio, in my eyes!

And you do get the unconstrained MSCI Quality :+1:

Settings

grafik

1 Like

I wonder what you are going to see if you change to the Net Total Return version of indices :laughing:.

Qualitatively, nothing much for Quality & World. Value loses a bit. Additionally Net is missleading where you have DTAs and tax credit (at the very least with high US concentrations).