Rolle im Portfolio
IShares Swiss Domestic Government Bond 3-7 ETF offers investors exposure to the performance of the medium-dated segment one of the safest government-bond markets in the world. It must be noted that this Swiss-domiciled and listed exchange-traded fund is not compliant with UCITS legislation.
Swiss government-bond yields out to the 10-year maturity are in negative terrain, and so the rationale for investing in this asset class is severely undermined. However, at times of severe market stress, this ETF could still work as a tactical hedge to riskier elements in an investment portfolio. The benefits of this insurance policy could be compounded. Capital gains on Swiss government-bond holdings at times of risk aversion would likely be enhanced via currency strengthening, given the Swiss franc's safe-haven role in the world's foreign-exchange market.
As this is a Swiss franc-denominated, non-UCITS-compliant ETF, non-Swiss investors must account for foreign-exchange and tax implications whenever using it.
Fundamentale Analyse
Switzerland is a safe haven for international investors. The government is constitutionally bound to keep a balanced budget through the economic cycle, and occasional deficits at times of economic slowdown rarely exceed 1.0% of gross domestic product per year. The commitment to budgetary stability keeps the public debt burden at low levels (30% to 40% of GDP) while effectively limiting the need for regular issuance of Swiss federal government bonds.
Swiss government-bond yields collapsed throughout the maturity spectrum after 2008 and now routinely trade at negative levels. The Swiss National Bank dropped its 1.20 franc/euro foreign-exchange target in early 2015, and in a bid to discourage Swiss franc appreciation, it dropped the main three-month Libor to a negative 1.25%/negative 0.25% target range and the deposit rate to negative 0.75%. This negative interest-rate setup remains in place as of this writing.
The Swiss economy continues to grow at a moderate pace of around 1.5% annually. However, Swiss franc strengthening, particularly since the discontinuation of the foreign-exchange peg, is a drag. The slowdown in emerging markets is also a concern. Meanwhile, largely owing to the franc's strength, Switzerland is going through a deflationary phase, which the Swiss National Bank expects to last through 2017 to only very moderately reverse thereafter.
Swiss monetary policy settings are likely to be kept in ultraloose mode for a protracted period; not least given the European Central Bank's equally ultraloose stance. As a result, yields on Swiss government bonds should also be expected to remain at historically low levels for the foreseeable future.
Indexkonstruktion
The Swiss Bond Index Domestic Government 3-7 is a subindex of the Swiss Bond Index Domestic Government. The index is calculated using bid prices from the SIX Swiss Exchange and is published in real time. It includes all franc-denominated fixed-rate Swiss government bonds with remaining maturity between three and seven years and minimum outstanding of CHF 100 million. Each bond is weighted by its market capitalisation. Intramonth bond coupons are reinvested overnight into the index. The index rebalances on a monthly basis on the first trading day of each month.
Fondskonstruktion
IShares uses physical replication to track the performance of the Swiss Bond Index Domestic Government 3-7 (note: total return). The rather small universe of Swiss federal government bonds allows iShares to fully replicate the underlying index. By definition, the ETF basket contains all of the index components with the same statistical weightings. However, minimal differences may occur. Historical data shows that the fund's basket is routinely made up of four bonds with weightings ranging from 20% to 30%. The ETF typically distributes dividends semiannually. This ETF does not engage in securities-lending activities.
Gebühren
The annual ongoing charge for this ETF is 0.15%. Additional costs potentially borne by investors and not included in the ongoing charge 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 review, measured in terms of assets under management, iShares Swiss Domestic Government Bond 3-7 ETF is the most popular of all ETFs providing exposure to the Swiss sovereign bond market.
The only alternative to the iShares range of Swiss government-bond ETFs is marketed by UBS. Also using physical replication, the UBS ETFs offer exposure to the same maturity segments and charge the same annual fees as iShares.
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