The main hedging costs are the costs of the currency forward contracts, which are not part of the TER. E.g. CHF-heding of USD currently costs 27.6 basis points for a month. That’s 3.36% p.a., roughly matching the interest rate difference. The expectation is that USD will depreciate 3.32% p.a., in which case the hedging cost will be fairly small. If USD depreciates more than that, you’ll profit from CHF-hedging. However, if USD depreciates less than that or even appreciates against the CHF, you lose the difference.
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Thank you very much for this explanation - very appreciated!
Just for my understanding: That does mean that the net hedging costs would be 0.04% p.a. if everything would work out as expected (which of course will not be the case)?
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I’m no expert on this, however, as I understand it, if the currency exchange rate exactly follows the market expectation on, e.g., a monthly basis, the hedging cost is the spread between the ask and mid prices of the FX forward contracts (+ commissions of the bank/broker but that might be part of the TER, not sure). That spread for a 1-month forward contracts is 0.5 bp according to the link above. That would be 0.06% p.a. This example also ignores the effect of stock market price changes (the hedged amount may no longer match the value of the stock a month later).
7 posts were merged into an existing topic: What are your thoughs around cap-weighted index funds
Any customer experience on Truewealth 3a? Fee-wise it seems great at 0.15%, despite tax withholding / currency hedging (which has worked very nicely recently).
https://thepoorswiss.com/true-wealth-3a-review/
@True_Wealth Any progress on this?
I haven’t had any issues. The returns with the global portfolio with the maximum stock component appear to fall slightly behind those of equivalent portfolios in Viac and Frankly, but I do not have clear data to back up my hunch because I didn’t replicate the exact same investment and timing on all three. However, it would seem logical for performance to be somewhat lower because the default True Wealth portfolios are more conservative (they include a Swiss real estate component). But it is possible to customize your portfolio.
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Hi Compound.
Yes, we’re in the final stages of launching these pension fund share classes of index funds. By the way, there are also index funds available today that are exempt from stamp duty.
The interest rate on cash 3a now is 1.5% and the management fee is 0.0%. Let us know if you have any further questions.
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Just checking what a 100% equity 3a portfolio might look like over at Truewealth (0.12% fees). Here we go:
Apparently, there’s no global index funds to choose (which might not be an issue if a mix of regional ETFs provide better total TER). But what bugs me more: It appears I cannot choose the % allocated to my equity funds, e.g. according to global market cap. So am I stuck with underweighting the US (34%) and overweighting Emerging (19%)?
Also tagging @True_Wealth
Sure you can: click on “Equities” next to the chart at the top, then to the left of the slider below click “Drilldown” and there you can change the weights of each region.
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Excellent, thanks, might have missed that in my test account playing around on my mobile phone.
Now waiting for the pension funds to come to Truewealth. A 2nd pillar would be great too, @True_Wealth , I bet you could easily outperform @finpension which charges 0.49%
Hi Compounding
Glad to see you are discovering the “slider” functionality within our app. There’s a level 1 drill down as well as a level 2 drill down. (For example, within US equities, you can adjust exposure to specific sectors within that market, such as tech or energy).
We’re also working on introducing more 3a pension funds. We’ll let our subscribers and clients know when we’re ready.
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Hi there,
when looking at your sample world portfolio, two things caught my eye. Is it correct that it:
- doesn’t include Canada
- includes South Korea twice (iShares Core MSCI EM IMI & Vanguard FTSE Developed Asia Pacific ex Japan)?
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Thanks, asseblyrequired, for pointing out these country-specific details.
Regarding Canada, our analysis shows that the Canadian and US markets are quite correlated when you include the oil component. However, if we were to introduce such a country-specific instrument (which we do not currently have), we would need to ensure that a highly cost-effective, tax-efficient and liquid instrument is available for both Pillar 3a and discretionary asset management (we offer both types of services).
As for South Korea, yes, there is some overlap, although Korea is not one of the big equity markets. Again, we would consider an ex-South Korea ETF/index fund as long as there are suitable instruments available for both Pillar 3a and discretionary wealth management. For existing clients, we also have to consider transaction costs, as we would not simply switch such an instrument.
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Its funny, for years I look into my TrueWealth Test Account - but I fail to understand how I can configure my 3rd pillar… the user interface is simply confusing.
Do you have a list of your current 3a pension funds? Not sure if I can open a 3a test account
The list of instrument is public, you do not even need a test account. You can see it dynamically depending on your asset allocation on their demo site (just switch from “Holistic” to “3a” next to “Portfolio Characteristics” in order to filter 3a instruments only): True Wealth
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Ah thanks, I’ve clicked pretty much everywhere but there 
Now I wish I could easily see which funds are pension funds and which are not…
I believe all those with “ETF” in the name are not pension funds, so it’s just the three CS funds for Switzerland, Japan and EU.
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I see, would be nice if they added the US as first priority
On what scientific basis did you come to the conclusion that market cap weighting is suboptimal, and based on which principles do you set the weight of each region?
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