Seeking Advice on Investing in S&P 500 ETF in Switzerland

[uberweston]

Hello SwissPersonalFinance community,

I'm looking to start investing in a S&P 500 ETF and would like to take your insights on the best approach in Switzerland. My main question is whether it's more advantageous to invest in an ETF denominated in USD or in CHF. For example, VOO is in USD but has a 0.03% OCF/TER instead of a 0.12% in CHF.

Additionally, I'm considering the platforms through which to invest. The two options I'm currently looking at are InteractiveBrokers and UBS. I already use IBKR. My preliminary analysis leads me to the UBS ETF, specifically the UBS ETF (IE) S&P 500 hedged CHF UCITS ETF. The reasons are :

1. The management fee for this ETF has recently been reduced to 0.12% (quite reasonable).
2. The ETF is denominated in CHF, which might be more favorable considering currency exchange risks.
3. It is a capitalizing ETF, which could be beneficial for reinvesting dividends and compounding growth.

I'm curious about your experiences or recommendations.

Thank you in advance!

 

[hesmyrock]

@uberweston TL;DR: Use IBKR and dont care about denomination as it is only an automatic currency exchange for higher TER

The denomination does not really matter wether it is in USD or CHF since the underlying performance remains the same but currency exchange is automatically calculated in for the CHF so you can save the extra TER. I would rather go for more volume to be more flexible in buying/selling and less spread.
If you believe that USD/CHF exchange rate falls more significant than the current money market diffenrence (the exact calculation is very intransparent and I did not figure out the exact % yet)
you might want to look for a CHF hedged ETF instead.

For the platform, IBKR still way cheaper than UBS so I would recommend IBKR.
There also should be ETFs denominated in CHF if you really want them. Just look for "(acc)" ETFs so they are accumulating instead of "(dis)" distributing.

 

[uberweston]

@hesmyrock Thanks a lot for the feed-back !

IBKR is also cheaper when buying, so that's a +1 as well for this option.

Comparing the USD/CHF ratio vs VOO, it's okay to lose some % vs the CHF because VOO has gone up a lot more. And I think a 0.03 vs 0.12% make a lot of differences in the long-run.

Thanks again !

 

[rev55]

@hesmyrock Wrong. The ubs etf he mentioned is hedging the currency risk!
My recommensation is that it depends on the planned investment time. If you plan for short or midterm, go for the hedged version

 

[graymike91]

@uberweston Having bought VOO and VUSA i can tell you it doesn't make much of a difference. Not that VUSA is hedged but you're just buying it with CHF. And basically while the values might change drastically, at the end of the day, i'm left with the same gains in CHF with one or the other

As for the UBS fund :

1- .12% is still four times worse than .03%. Not that .12% is that high to begin with but that fact alone doesn't necessarily work for me

2- if hedging is a factor for you then sure, but like i said, it isn't a big deal IMO

3- you can always reinvest your Distributed dividends. So the only thing to consider here is the laziness factor: If you're planning on buying once and forgetting it for 20 years, sure, Acc makes sense. Otherwise you can just invest your dividends with your monthly contribution

4- that UBS fund is worth 220millions. It's really not that big. Not that i'm worried about a UBS fund failing (or am I ?) but rather it has a very low trading volume, meaning prices are more likely to swing up and down and selling or buying big chunks can be more challenging. For reference, SESGS has sold 53 shares today while VUSA has sold 488. And even VUSA is pretty small compared to VOO (NYSE hasnt opened yet but it's usually around several thousands each day)

EDIT : I should also add that hedging, while being a security fee, is also depending on your needs. There's no need for hedging if you're like 30 and are just investing for your retirement and don't need that money. I mean sure you'll want to sell this eventually, and so you'll then bear the currency risk when you need stable income, but it's very likely that the additionnal gains unhedged funds gave you over the years will be worth more than any currency risk could be worth in 30 years time.

Unless maybe you're very pessimistic about the CHF/USD rate, but then that's a very personnal view nobody can help you with

 

[uberweston]

@graymike91 Thanks a lot for this amazing feedback !

I'm 24 so, I think it's okay to buy VOO or IVV without and hedge.

Comparing the USD/CHF ratio vs VOO confirmed this option.

I also like the argument of liquidity, Vanguard has so much volume, that's a +1.

I'll continue to use IB and buy VOO and IVV 50/50 I think.

Thanks again !

 

[graymike91]

@uberweston Do wait for more feedbacks though. I'm pretty sure the overall feeling of that subreddit is that hedging is useless, but some people might disagree and give you valid reasons for it.

And yeah, volume is a bitch sometimes. If you place too big of a buy order you risk hiking up prices, and the other way around for selling so it needs to be planned ahead and it makes any big withdrawal inherently riskier (but you can end up just fine ofc).

 

[hesmyrock]

@graymike91

Do wait for more feedbacks though. I'm pretty sure the overall feeling of that subreddit is that hedging is useless, but some people might disagree and give you valid reasons for it.

Yup. Since US has a money printer going brrrrr and the CHF has its very own history in gaining value against like any currency... personally I prefere hedging in CHF. At least partially.
Saw too many people crying again at the end of 2023 when almost all gains were gone because of the exchange rate.

But this is a very complicated subject anyone has to handle how they feel more comfortable with.

 

[christhomas2]

@uberweston As already said, use IB, way cheaper than UBS and no stamp tax.

Many people hedge currency risks with futures, swaps, carry trades, options, or, the most expensive way, hedged ETF.

I don't. In my opinion every last and single company is it's own currency. If you measure your performance in USD it will be higher as in CHF for the past, but over longer time-frames this will be peanuts. And nobody knows the future. Except that it doesn't come for free, no insurance does.

SP500 companies are usually big international enterprises that make their money in many different currencies. So, even if you hedge Dollars against CHF you still may lose on currency fluctuation. The hedge is actually just another bet, another trade. I don't like to trade worthless things like cash.

BTW: there is no cheaper way to exchange currency than IB, I think they even block your account if you use it only to exchange currency. So send in your CHF, exchange there and buy the better ETF in USD.

 

[labryan]

@uberweston I'm invested in iShares S&P 500 (accumulating) in USD, which is available at the Swiss marketplace SIX. Ticker: CSSPX

 

[tobiahjude99]

@uberweston Watch this on why s&p only is a bad idea:

Also only buy US domiciled funds otherwise you lose 15% of the dividends in withholding tax.

 

[uberweston]

@tobiahjude99 I totally agree that we are so high right now !

So, VOO is not a problem regarding the dividend ?

I heard that some fund are based in Ireland for the same reason.

 

[tobiahjude99]

@uberweston Ireland has a tax treaty with the US for the funds domiciled there, which reduces the withholding tax from 30% to 15%. But those 15% are not recoverable.

With US domiciled funds bought at ibkr for example, you set up the w8-ben at ibkr which reduced it to 15% as well. But then you can claim back that 15% with the da-1 form in your swiss tax declaration.

This is due to a tax treaty between CH and US

 

[graymike91]

@tobiahjude99 Wait i had some VOO last year and i'm sure i had only 15% tax without filling anything. How would you explain that ?

 

[tobiahjude99]

@graymike91 That‘s exactly what I wrote no?

 

[graymike91]

@tobiahjude99 No you said US domiciled funds can have reduced withholding tax to 15% thanks to w8-ben. Then you can claim those 15% through da-1. Implying it's taxed 30% if you don't do anything.

I said i haven't filled anything and yet have gotten 15% taxes only on VOO, whereas according to you i should have had 30% (no w8-ben).

I'm trying to figure out if i did something wrong / should have done something else.

I've cheked my statement and i've got 1.8011/share in december (consistent with vanguard statements), from which 0.27/share have been kept.

 

[tobiahjude99]

@graymike91 Yes and you file the w8-ben when creating your account. Ibkr makes you do it automatically.

Nothing I said was wrong

Few years ago it also wasnt automatic iIrc.

 

[uberweston]

@graymike91 I try to understand as well. I am confused

 

[graymike91]

@uberweston All good.

In both cases there are 30% : 15% of L1WT (from companies to the ETF) and 15% of L2WT (from the ETF to you). The treaty between Ireland and Switzerland knocks out the L2WT but the L1TW remains. So the dividends paid by your ETF reflect those 15% of L1WT

IBKR apparently fills W8-BEN up automatically for you so that you're not charged with the L1WT in the US. The remaining L2WT are witheld until you declare your dividends in Switzerland at which point they get back to you.

So let's say 2 ETFs are exactly the same, one in IE the other in the US, both with 100 in supposed dividends. The IE ETF will pay you 85 and that's the end of it. The US ETF will pay you 85 and 15 will be witheld but you can get them back.

EDIT : slightly dumbed dowm version since L1WT depends on where each company in the ETF is located, but assuming they are all US - which is true of VOO - the numbers i mentionned are the real deal. If you invest in global ETFs it's gonna be slightly less favourable but still better than IE funds, unless most companies in that ETF are Irish (i'm not 100% sure on that one, but it's not happening anytime soon anyway)