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The problem with the all-world ETF
A FTSE All-World or MSCI ACWI invests around 60-65 % in US equities. A pure MSCI World (without emerging markets) even invests over 70 %. For someone who lives in Switzerland, earns in CHF and consumes in CHF, this means: you have a large block Foreign currency risk - especially USD/CHF.
What's more, an All-World is weighted according to market capitalisation. This means that the more expensive a market becomes, the more of it you buy - automatically.
This can cost you dearly. If the MSCI World in USD rises by 10 %, but the Swiss franc appreciates against the dollar at the same time, only a fraction of the return remains in CHF - or in extreme cases nothing at all.
Hedging would be a solution - but it is not a free offer. The main driver of hedging costs is the interest rate differential between CHF and USD (the so-called «cost of carry»). Depending on the interest rate level, this can cost significant returns over longer phases. There is an easier way: targeted home bias.
Hello, Eric,
How should I assess the exchange rate risk if I hold the VWRA in USD and save monthly? Is this too high a risk for me as I always buy CHF in USD first and sell in the other direction. Or is this negligible? I chose the VWRA because it appears to be very liquid via London, is accumulating and simply invests worldwide.
Otherwise I hold cash and Frankly pillar 3a ETF positions and would like to build up assets via the VWRA by saving monthly?
Thank you and best regards,
Pascal
Hi Pascal
Important to understand: The trading currency (USD) is not your
Exchange rate risk. The real risk lies in the fund itself, i.e. in the
Equities: good +60% USA in the World ETF plus other foreign currencies. You would be the same
risk, even if you buy the VWRA on the SIX in CHF.
could. Trading currency is not the same as hedging.
On top of this, with the USD variant, the exchange rate fees of your
brokers when exchanging CHF for USD. With good brokers like Saxo or
Swissquote is manageable, with the house bank this can become noticeable.
My approach: International diversification remains correct, but instead of just
a world ETF, I would consciously choose a Swiss allocation.
to be added. For example, 20-30% in an SPI ETF reduces the
USD lump risk proportionately and at the same time lowers the
Exchange rate fees on this part. This is exactly what the article is about.
Kind regards
Eric
ImportantThis is not an investment recommendation!
As always, an overall view applies to the portfolio.
Only one all-world ETF in the free assets may be sufficient in certain situations if an overweighting of the Swiss and emerging markets is defined in the tied investments (3a). Some providers make it possible to invest exclusively in these markets in the tied portion.
Due to the higher dividends in Switzerland, there is also a substantial tax advantage if the Swiss portion is held as tied assets.
Absolutely, thanks for the valuable addition, Adrian.
In practice, however, you should make sure that the overall view is realistic. To say today «I still have a 3a and my PK also makes up a lot» is true, but the control there is sometimes severely restricted.
Furthermore, I often observe that investors forget the impact that an intervention in one place has on the overall portfolio.
That's why there's a lot to be said in favour of targeted investments: One goal = one investment pot. Clear investment horizon, clear risk profile, clear coordination.
Dear Eric
As a regular buyer of MSCI World and FTSE All-World, I read your blog post and your thoughts with great interest.
I can well understand the points you have outlined regarding the high proportion of US funds in global and developed ETFs, the associated currency risk and, in particular, the depreciation of the USD against the CHF.
However, there are a few counter-arguments that I would be interested to hear your opinion on. I would like to check whether my considerations are at least partially correct:
1. PERFORMANCE:
Historically (or over the past 12 years), global or developed ETFs have generally performed better than Swiss ETFs.
See e.g. the comparison on https://www.justetf.com/ch/etf-comparison.html?isin=IE00B4L5Y983&isin=IE00B6R52259&isin=CH0237935637&isin=CH0237935652&isin=CH0008899764&isin=CH0031768937 .
If you set the slider to «Max» in the chart, you can see the performance since mid-2014.
The iShares Swiss Dividend can still keep up to some extent in terms of price performance, but is significantly less diversified with only 20 positions. In addition, dividends are taxable, which leads to a lower after-tax yield.
Isn't the better long-term performance of global and developed ETFs enough to at least partially compensate for the disadvantages you mentioned?
Of course, there is no guarantee for the future, but a period of around 12 years still seems to me to have a certain significance.
2. EXCHANGE FEES:
There are World and Developed ETFs that are traded directly in CHF on SIX.
One specific example is the UBS Core MSCI World (IE00BD4TXV59, accumulating, TER 0.06%).
3. HOME BIAS:
Anyone who lives in Switzerland and earns in CHF usually already has a strong CHF exposure anyway.
The Swiss market is also rather small. A few large companies dominate the Swiss indices (e.g. Nestlé, Roche, Novartis with 12% each in the SPI and 15-16% in the SMI).
A high proportion of CH therefore increases the individual security risk.
Against this backdrop, wouldn't it even be counterproductive to also focus heavily on the Swiss market?
Thank you in advance for your feedback.
Kind regards
Dario
Dear Dario,
Thanks for your thoughtful points - exciting discussion!
1. performance: It depends very much on the time period. The last 12 years have been good for World ETFs - but much of that outperformance came from USD strength and the US tech rally. Neither has to repeat itself. If you consistently factor in currency losses, fees and taxes from a Swiss perspective, there are over 25-30 years of studies where the SPI has beaten the MSCI World. And 2025 in particular was a good example: the SPI made strong gains, while the MSCI World barely got off the ground from a Swiss perspective due to the loss of the dollar. This is of course a snapshot - but it shows how quickly the picture can change.
2 CHF trading ≠ CHF hedging: That's right, you save on exchange fees when you buy an MSCI World ETF on the SIX in CHF. However, this does not change the currency risk. The shares in the fund are still valued in USD, EUR, JPY, etc. If the dollar falls, your return in CHF falls - regardless of the currency in which you bought the ETF. Trading currency is not the same as hedging.
3. home bias: this is your strongest argument, and I partially agree. Nestlé, Roche and Novartis dominate the SPI - blindly 50% Switzerland would not be a good plan. But my point is not «all in Switzerland» at all. International diversification remains the focus - you want to have tech companies from the USA and other exciting stocks worldwide in your portfolio. But a deliberate Swiss allocation of 20-30%, for example, can significantly reduce the overall currency risk without manoeuvring you into a cluster risk. This is different from «betting heavily on the Swiss market».
Short: The World ETF is a good basic product. My article is directed against the misconception that it alone is a ready-made strategy - especially as a Swiss citizen. 😊
No investment advice.
Kind regards,
Eric