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Update: iShares Swiss Domestic Government Bond 1-3

Es bestehen gute Chancen, dass Sie mit diesem ETF Geld verlieren - wenn nicht nominal, so zumindest doch real. Doch für Investoren, die turbulente Zeiten an den Märkten erwarten, kann dieser Quasi-Cash-Ersatz eine gute Figur abgeben.

Jose Garcia-Zarate 20.02.2015

Rolle im Portfolio

The iShares Swiss Domestic Government Bond 1-3 ETF offers investors exposure to the performance of the short-dated segment one of the safest government bond markets in the world. For most investors, particularly non-Swiss based, this ETF is likely to be used as a hedge to riskier elements in an investment portfolio. The benefits of this insurance policy role could be ultimately defined as compounded, as capital gains on Swiss government bond holdings at times of risk aversion might be enhanced via currency strengthening, with the Swiss Franc (e.g. CHF) also fulfilling a safe-haven role in the world’s foreign exchange market.

The short-dated maturity bias makes this ETF a suitable vehicle for cash (e.g. CHF) equitisation purposes. However, investors making use of this ETF for such purpose should pay attention to the potential for capital losses arising from exposure to interest rate risk. Regarding this latter point, those with a Swiss-centric portfolio can also use this ETF for duration management purposes in response to variations in interest rates, with the short-dated maturity of the fund only making it suitable for duration shortening strategies.

Unless used as the fixed income building bloc of a Swiss-centric investment portfolio, the majority of likely uses for this ETF would make it more a satellite than a core element in asset allocation. As this is a CHF-denominated non-UCITS-compliant ETF, non-Swiss investors will have to account for foreign exchange and specific tax implications whenever making use of it.

Fundamentale Analyse

Switzerland is an international safe-haven of choice at times of crisis. This is predicated on a raft of factors, amongst which macroeconomic strength and sound public budget management. The federal government is constitutionally bound to keep a balanced budget over the economic cycle, and although it is allowed to run deficits at times of economic slowdown, budget shortfall projections rarely exceed 1.0% of GDP per annum. Swiss federal government bond issuance is not a common market event, while the commitment to budgetary stability keeps the overall public debt burden at comparatively low levels (e.g. 30-40% of GDP). 

Swiss government bonds have been met with a solid body of demand from 2008 onwards. Yields have collapsed and remain at historically low levels; even routinely trading into negative terrain for short-dated maturities. 

Safe-haven flows also pushed the Swiss Franc (CHF) to levels the Swiss National Bank (SNB) saw as threatening export competitiveness and with the potential to cause a sustained deflationary phase. In mid-2011, the SNB announced it would target a maximum CHF/EUR 1.20 exchange rate, underpinned on a promise of intervention in international FX markets whenever required. This FX peg was discontinued in January 2014 as, with the ECB about to embark in QE, the SNB judged it would become too costly to maintain. At the same time, the SNB cut interest rates to -0.75% in an attempt to discourage CHF appreciation. 

The Swiss economy has weathered the global crisis in much better shape than other developed economies, mainly owing to its exporting strength. Even accounting for downside risks (e.g. Eurozone’s flimsy recovery and a slowdown in emerging markets) the SNB expects GDP to grow by 2.0% in 2015. However, the strength of the CHF, prior and post the FX peg, is a key factor in keeping Swiss inflation at very low levels. The economy experienced a deflationary phase in 2012-2013, and inflation is forecast to remain at near-zero levels throughout 2015 and 2016.

Against this backdrop, Swiss monetary policy settings are likely to be kept on ultra-loose mode for a very protracted period. As a result, yields on Swiss government bonds should be expected to remain at current historically low levels for the foreseeable future.

Indexkonstruktion

The Swiss Bond Index Domestic Government 1-3 is a sub-index of the Swiss Bond Index Domestic Government. The index is calculated using bid prices from SIX Swiss Exchange and is published in real time as early as 08:30 am CET. It includes all CHF-denominated fixed-rate Swiss government bonds with remaining maturity between one and three years and minimum outstanding of CHF 100mn. Each bond is weighted by its market capitalisation. The index is calculated both on a price and total return basis, with coupon payments reinvested overnight in the latter case. Changes to the index are made on a monthly basis on the first trading day of each month.

Fondskonstruktion

This Swiss-domiciled and listed ETF is not compliant with UCITS legislation, meaning it cannot be passported for registration and commercial distribution to retail investors across the European Economic Area (EEA). As of this review, the fund is authorised for commercial distribution in Switzerland and Liechtenstein. iShares uses physical replication to track the performance of the Swiss Bond Index Domestic Government 1-3 (note – total return). The reduced universe of Swiss federal government bonds allows iShares to fully replicate the underlying index, with the statistical weight of each bond in the fund’s basket reflecting their outstanding as a proportion within the 1-3y maturity bucket of the Swiss federal government bond market. As of this writing (late January 2015), the fund’s basket was made up of just three bonds maturing in 2016-17 with individual statistical weightings broadly ranging from 20% to 40%. The ETF typically distributes dividends on a semi-annual basis, with historical data showing a Jan-Jul payment pattern. As of this review, this ETF does not engage in securities lending activities.

Gebühren

The annual total expense ratio (TER) for this ETF is 0.15%. Additional costs potentially borne by investors and not included in the TER include bid/offer spreads and brokerage fees when buy/sell orders are placed for ETF shares. There are also rebalancing costs whenever the index changes composition.

Alternativen

As of this writing, the only alternative to the iShares range of Swiss government bond ETFs is marketed by UBS. Launched in November 2010, and also using physical replication, the set of UBS ETFs offer exposure to the same maturity segments and charge the same TER as iShares.

Über den Autor

Jose Garcia-Zarate  is an ETF analyst with Morningstar UK.