VIAC Third Pillar

Banks, Insurances & Third Pillar
12

SNB rate - FED rate = hedging cost for CHF/USD. To be exact it’s actually the difference between short term state bond rates (1 year for example).

@dbu
Btw, an overweight to Swiss stocks isn’t really that bad. It had an avg. return of 8-9%/year in the last couple decades (see MSCI Switzerland). So in CHF even better than the SP500. My personal take: Switzerland will keep outperforming the rest because of several factors. We are very similiar to the US (high inflow of skilled workers, a lot of high tech companies, low taxes for companies etc.) but have several advanptages like a more stable political system, free schools, high median salary, basically no poverty, no war and pretty good relationships with the rest of the world (US, China and Russia). This might be priced in already, but I’m willing to take the bet and set CH to 37%.

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13

What are your VIAC Third Pillar strategies and why did you chose them?

14

I have a question to other VIAC users. Does the fact that the various Credit Suisse funds (I have not checked the UBS ones since I don’t use them) use derivatives bothers you? I am asking because when I was looking into Boglehead style passive investing, other on the Boglehead forum or e.g. here, it was almost always advocaded to only go for ETF with full physical replication of the index.

Here is the link for the prospectus for those interested.

15

Where do you see they do synthetic replication for the index funds? At least when checking a few subfund the KIID says it’s physical replication.

16

So if you look at e.g. iShares Core S&P 500, it is indeed a physical replication. However, it is not the case for the CSIF ones. In the link that I provided and which comes from the CSIF funds prospectus, you can look p. 9 bottom right column the CSIF (CH) III Equity US Blue - Pension Fund, one can read:

Appendix. In some cases, it may invest in a representative selection of securities from the benchmark index (optimized sampling) rather than in all the securities in the index. Selection is facilitated by a system that takes account of both quantitative factors as well as factors that determine returns. The portfolio may be limited to a representative selection of securities from the benchmark index owing to the investment restrictions set out below, to other legal or statutory restrictions, to costs and expenses incurred by the subfund, or to the illiquidity of certain securities. These optimization strategies can involve holding securities in a different proportion to that of the benchmark index and/or using derivatives to replicate the performance of specific securities contained in the benchmark index.
The subfund invests
a) in equities and other equity-type securities and rights (shares, dividend-right certificates, shares in cooperatives, participation certificates, etc.) of companies which are contained in the above-mentioned benchmark index;
b) temporarily in assets as per prov. a) of companies which are not contained in the benchmark index but where there is a high probability that such securities will be able to join the benchmark index on the basis of its acceptance criteria;
c) up to 10% in assets as per prov. a) of companies which are not contained in the benchmark index but have similar investment characteristics with a corresponding risk profile;
d) in units of passively managed domestic and foreign collective investment schemes, either exchange-listed or unlisted, that are compliant with the investment policy;
e) in derivatives (including warrants) on the above investments.
Investments (including derivatives on these investments) which are dropped from the benchmark index must be sold within an appropriate period while safeguarding the interests of the investors.
The subfund may invest up to 20% of its assets in money market instruments issued by borrowers worldwide and in all freely convertible currencies within the meaning of prov. 2 d) above.
Furthermore, not more than 5% of the subfund’s assets may be invested in futures
– on the aforementioned benchmark index
– on the indices of individual countries and regions that are reflected in the benchmark index
– on indices which are primarily based on the same markets as the subfund’s benchmark index.

You can also look at the CSIF Pacific ex Japan, where p. 9, one can read:

Through direct and indirect investments, the subfund may track the
benchmark index given in the table at the end of the prospectus
(“benchmark index”). In some cases, it may invest in a representative
selection of securities from the benchmark index (optimized sampling) rather
than in all the securities in the index. Selection is facilitated by a system that
takes account of both quantitative factors as well as factors that determine
returns. The portfolio may be limited to a representative selection of
securities from the benchmark index owing to the investment restrictions
set out below, to other legal or statutory restrictions, to costs and expenses
incurred by the subfund, or to the illiquidity of certain securities. These
optimization strategies can involve holding securities in a different proportion
to that of the benchmark index and/or using derivatives to replicate the
performance of specific securities contained in the benchmark index

So while they might not use only derivative, I am not sure we can know exactly what they do.

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17

Hi guys,

I’d like to reproduce a World exposition and VIAC is really good for that. The default VIAC Global 100 equity exposition put a lots of weighting to Swiss:
|—|---|—|
|Asia|12%|CHF 0.00|
|Europe|11%|CHF 0.00|
|Africa|1%|CHF 0.00|
|North America|34%|CHF 0.00|
|Switzerland|40%|CHF 0.00|
|Latin America|1%|CHF 0.00|
|Oceania|2%|CHF 0.00|
|Total|100%|CHF 0.00|

But if you look at the MSCI World country weights, Switzerland represent only 3.50%.
I changed to an individual strategy to follow the above propositions with a more balanced World approach with
|—|---|—|
|CSIF SMI|7%|CH|
|CSIF SPI Extra|3%|CH|
|CSIF World ex CH hedged - Pension Fund|27%|CHF|
|CSIF Europe ex CH|23%|Euro|
|iShares Core S&P500|17%|USD|
|CSIF Canada|3%|CAD|
|CSIF Pacific ex Japan|6%|Asia|
|CSIF Japan|4%|Asia|
|CSIF Emerging Markets |7%|Asia|

In order to do that you to take a derivative hedge CHF product such as CSIF World ex CH hedged - Pension Fund and there is one thing I do not understand on the product. VIAC advise it as 0% cost but when you look at the KIID you can see 5% entry charge and 2%exit charge in addition of the 0.27% ongoing charge.

How do you understand the 0% product costs from VIAC website ?

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18

Did you check the right share class? Viac uses the institutional version and the fees normally go out of the 0.5%.

19

I couldn’t find the product you mentionned, on the VIAC products’ list. ISIN CH0348026649 ? Not there.
I think you meant CH0032400639 (CSIF World ex CH - Pension Fund, factsheet). The factsheet indeed states that the “ongoing charge” is 0.00%.

20

Thank you nabalzbhf and bonanza.
I’m talking about the CH0198191493 CSIF World ex CH hedged – Pension Fund in CHF currency.
It’s just bellow the USD CH0032400639 that I can find in their Assets list.

As mentioned by nabalzbhf , the ongoing charge is 0% and the spread between 0.03% and 0.08%.

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21

What you are doing here is using the hedged world fund, which counts to your “Swiss” allocation requirement of 40%.

Hedging is generally not recomended due to costs, so I prefer to accept this swiss overweight within 3a.

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22

Note: the cost is much lower now compared to a few months ago.

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23

This. As the FED/SNB rates are just 1% apart now, hedging costs are currently just 1%/year.

24

The main risk in main knowledge is the currency variation of USD/CHF pair that can reduce the CSIF World performance compare to the CSIF SMI the day I move to cash.
I just felt more comfortable with an allocation closer to the MSCI World.

26

IMHO, the bigger risk is the macroeconomic forces at play. In brief, there’s a coming short squeeze on the US dollar given the pressure on global US-denominated debt (government, corporate, household). The US federal reserve has set up swap lines with 15 allied nations (probably Turkey soon too), to provide short term eurodollar liquidity. Non-swap line nations are seriously screwed. They will scramble for US dollars, sending it higher and higher. US equities will rise as global capital seeks safety, creating a bubble. Most if not all currencies will fall, and many will fail. Emerging markets will suffer badly–except maybe commodities in the long-long run.

This is the Dollar Milkshake Theory. Google it (Brent Johnson) if you want to details. If you don’t, then at very least avoid investing in non-swap line nations (ie. any emerging markets). Katusa Research explain it well, although they’re focused on commodities.

Regarding allocations in VIAC, I think there’s few options for us other than US equities and gold. The Swiss franc is safer than the euro. I will rebalance at the end of this month, but haven’t figured out what I’ll do yet.

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27

EDIT BY MODERATION:

Referral codes are not allowed anymore on this forum. This is not VIAC marketplace.

28

Might want to edit your blog post about it:

" UPDATE 03.09.2018: I don’t have codes anymore. But ask on the forum if another reader can share one with you."

30

Hello all,

I hope this is the right place to post.

I’m mulling over whether my wife and I should contribute to our VIAC 3a pillar in 2021 - if so then we’d do so in January. We both have the Global 100% strategy. The alternative would be to put it into our VT funds through Interactive Brokers.

I have crunched the numbers in the following way, and would appreciate anyone’s feedback on if there is anything I haven’t taken into account. All the figures below are based on returns after a period of 25 years.

Option 1 - Do not contribute to VIAC, invest in VT through IB instead
13766 CHF earning 5% interest in VT with fees of 0.08% through Int. Brokers: 45 697 CHF

Option 2 - Contribute to VIAC
13766 CHF earning 5% interest in VIAC Global 100 with fees of 0.52% through Int. Brokers: 40 954 CHF
Tax saving by us both contributing to VIAC 3a: 2000 CHF
Tax saving of 2000 CHF invested in VT, earning 5% interest in VT with fees of 0.08% through IB: 6639 CHF

Option 1 - Return in 25 years’ time: 45 697 CHF
Option 2 - Return in 25 years’ time: 40 954 + 6639 = 47 593

Saving by taking option 2: 1896 CHF

The tax saving may seem less than one might expect, though my wife is taking a few months off beyond the end of statutory maternity after our 2nd baby was born last week, and we live in Canton Zug, which is tax friendly anyway.

31

You forget that dividends are taxed in a taxable account and that you need to pay wealth tax on your taxable net worth.

Taxes on dividends and the wealth tax are higher than the difference in cost.

3 Likes
32

Aha. Thank you. I hadn’t figured those into my calculations.
Pillar 3a is a non-taxable account, right? So this makes it even more attractive for me to go with VIAC…?

33

Yes, but there will be a ~5% tax on withdrawal of a pillar 3a account.