Why does my portfolio return differ from the multi-asset benchmark?

Our multi-asset benchmark is composed of capital market indices from renowned stock exchanges and financial data providers. As the term multi-asset suggests, it is suitable for an investment portfolio that is individually diversified across various asset classes. The aim is to compare your portfolio return with a theoretical return based solely on your investment strategy.

You can access the multi-asset benchmark by logging in, selecting Performance, and then clicking on Benchmarking.

Why does my portfolio return differ from the multi-asset benchmark?

First, it is important to understand how capital market indices such as the SMI, SPI, S&P 500, or MSCI indices work. They are based on highly idealized assumptions so that they can be compared with each other. In practice, a portfolio invested with real money will therefore always differ from the benchmark. As a rule, the theoretical return is slightly better than the actual return. This is due to the following reasons:

Explicit implementation costs

Fees and friction costs are incurred when implementing an investment strategy. These include asset management fees, product costs of the investment instruments (TER), and stamp duties.

Brokerage fees should also be mentioned, but these are included in our management fee. (It should be noted that we do not charge any management fees or brokerage fees in our pillar 3a.)

Implicit friction costs

In addition, implicit costs must always be taken into account. These costs include the bid-ask spread and slippage. The bid-ask spread arises because the price for buying a security (including ETFs) on any exchange at any given time is always slightly higher than the price for selling the same security. The same applies to currencies, although these are traded on the interbank market rather than on exchanges.

Slippage describes the effect that transactions cannot always be executed at the price specified in the order (or the prices set by market makers). This can be the case, for example, if the market moves against you during the execution of the transaction.

The multi-asset benchmark takes these costs into account when implementing the investment strategy by using imputed costs, which can be switched on and off.

In individual cases, however, these implementation costs may also be higher. This is because even though brokerage fees are included in our asset management fee, any change in investment strategy incurs friction costs. If you have frequently changed your investment strategy in the past (which we advise against, as market timing is rarely successful) or have made very frequent large deposits and withdrawals, this can lead to a reduction in returns. Making this transparent is one of the purposes of the multi-asset benchmark.

Timing (time lag)

Stock exchanges are closed on weekends and public holidays. For other reasons, it can sometimes take a few days for us to fully invest or rebalance your portfolio after deposits, withdrawals, or strategy changes. However, in the multi-asset benchmark, all deposits, withdrawals, and strategy changes are reflected at the end of the day without delay. If the capital markets move significantly during this period, this will lead to a positive or negative deviation.

Degree of precision of the capital market indices used

We strive to use indices for the multi-asset benchmark that reflect the investment instruments used as accurately as possible. Nevertheless, the indices used in the multi-asset benchmark may differ in the weighting of securities from the benchmarks that underlie our investment instruments or have underlain them in the past.

For example, individual investment instruments (ETFs or index funds) impose certain limits at the level of individual equity or bond issuers for reasons of risk limitation or due to regulatory requirements (UCITS). (It should be noted that our app provides detailed transparency about the companies held in the investment instruments.)

The tax treatment of income (interest or dividends) from the securities included in the indices is also complex. For bond indices, the industry standard is gross or total return. All income is recorded tax-free (gross) in the capital market indices.

For equity indices, on the other hand, both gross and net return variants (in which withholding taxes are deducted) are common. However, neither variant is always suitable for Swiss investors, as the actual tax burden often deviates from the international net return standard. This is a consequence of the many different double taxation agreements.

When selecting the indices for our multi-asset benchmark, we chose the return variant for each asset class that most closely approximates the actual tax burden of Swiss investors. Nevertheless, this effect can lead to minor deviations between the performance of the portfolio and the performance of the multi-asset benchmark.

In the case of sustainable investment instruments, there is also no generally accepted system for index construction. In addition, individual ETFs or index funds have made minor adjustments to their benchmarks or security weightings over the course of their existence.

All of this can lead to positive or negative deviations between the portfolio and the benchmark.