At least the price of VETY seems to have been performing better than VUTY but after checking VETY on JustETF I don’t like that it has quite long term duration bonds (average at ~10 years) and the quality of the bonds are a bit of a panache up to the lowest quality being BBB.
I find it very difficult to find an appropriate bond and my conclusions tend towards US government/treasury bonds as being the “safest” and more interesting in terms of yield or dividend. For example you mention BND which I also held for a short seem to be a safe bet. The major problem then with US bonds is the currency itself (USD) which for example has lost quite a lot last year against the CHF. Then I also liked VTIP for parking my USD short term until I use it to by more stocks ETF such as VT.
For a long term holding, doesn’t the uncovered interest parity mostly hold (just with a lot more uncompensated volatility)? In which case the expected returns would be the same as a local government bond (negative).
That’s the theory so I guess yes but in practice not so sure, maybe someone with has a clue could give their opinion on this?
For example I observe these days that while USD but also EUR and GBP currencies seem to appreciate, I see the price of the VUTY (USD treasury bond) decreasing. So what I would loose by selling VUTY, I would gain back due to the USD/CHF exchange rate as I would need CHF for day to day life. A null sum game… but then there is more than just currency playing a role as far as I know.
Yes, short term it’s not supposed to hold (but then you can win or lose, esp. as a small time investor it’s likely mostly luck there’s much bigger players involved who will spend the big bucks if they have an edge).
Correct me if I’m wrong but if you choose something other than 97% stocks, VIAC does allocate your non-stock money in cash (0.1% interest rate) instead of bonds because of the negative rates.
They add 10% Real Estate and 2-5% gold for their Global/Swiss 20 to 80 strategies. The Sustainable strategies forego the gold part. For example, Global 60 is “only” 26% cash.
They seem to consider that cash is better than negative yield bonds, I agree with them. To me, the competition is between (semi-)safe government/state bonds yields and savings/term deposits interest rates. Cash wins that competition for now in Switzerland.
Yes, I did sell my VETY holdings at the start of this week with a moderate profit. I think I was holding for about 3-4 years in total.
It seems that the conclusion is that nothing is clearly recommendable for a mustachian as an alternative to holding CHF? Is there there still some kind of safe, liquid and productive asset out there?
Wouldn’t a Swiss REIT fund be similar to a building and a mortgage, but more liquid and more diversified?
Do you mean “…similar to a building and a mortgage” ? Then yes, regarding funds using leverage (wild guess, they are all using leverage (no problem with that, depending on how much)).
Real estate seems indeed the closest “productive” asset class available, hence the pension funds flocking to it in recent years.
A couple of caveats I think:
it’s not risk-free, real estate funds are less risky than direct home ownership though because they’re much more diversified
it’s somewhat correlated to the stock market, especially for funds investing in commercial properties
So not a direct replacement for bonds, but I think a small allocation in swiss residential real estate funds can make sense.
Checking the charts of VETY around 3-4 years ago it was quoted at 24-25 EUR so selling now at around 27 EUR is not bad at all for a bond IMHO. I quote here in EUR because I am checking VETY.AS (on the Euronext Amsterday exchange).
It’s interesting that you mention REITs because I was also starting to look again at REITs as an alternative to bonds for maybe my next year’s strategy of bonds still look pretty depressing. In Swiss REITs it looks like SRFCHA or SRECHA is the way to go but first they have a quite high TER and what I don’t understand here is what is really the difference between the two? Maybe @REandSTOCK or @s-g have an idea here?
European/Asian/DM REITs don’t look very exciting and are quite volatile (I was mostly checking iShares REITs) else there are US REITs which have some interesting yield and seem to be performing quite well such as VNQ but again then you are locked into US and the USD.
It seems that both Swiss funds reached high valuations from 2019 to 2020 then dropped sharply to more historical levels when the corona happened. I understand the drop but is there an explanation for the high valuations?
SPSN.SW has a yield of 3.87%, what’s the catch?
@mabi those UBS funds do look like quite expensive.
All of those include a substantial part of commercial real estate I think, which obviously is suffering with the coronavirus situation and I guess it explains the poor performance since march 2020. Commercial real estate is also generally more volatile than residential.
I didn’t find any ETF tracking residential swiss funds so this leaves individual funds themselves.
The fees in this market are obviously much higher than the typical mustachian investment, after all they still need to manage the properties.
The full list of funds is available here for example:
Yes, the funds I cited are exclusively commercial, I was not aware. That is a bet that the corona situation will be soon over and we will go back to normality… Even in Switzerland there is a jungle of those funds, and I am not qualified to point to the one that make most sense for a mustachian…
@Guillaume_GVA care to explain the 30% premium to a financially illiterate like me?
Premium to net asset value (NAV ) is a pricing situation that occurs when the value of an investment fund is trading (market price) at a premium to its daily reported accounting NAV . Funds trading at a premium will have a higher price than their comparable NAV .
Example: The NAV values a share at CHF 100. With a premium of 30%, you will pay CHF 130 instead. The premium is shown in the 5th column of the pdf shared by s-g above.
I’m far from an expert and started looking into this just a few months ago, but the whole thing is much closer to stock picking than to typical mustachian ETF investing.
The wildly different investment approach of the funds and the very different premiums as explained by @Guillaume_GVA means that you need to dig into the individual yearly reports of the funds, which is not quick and easy…
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there’s much bigger players involved who will spend the big bucks if they have an edge).