US ETFs are the best ETFs for Swiss investors
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I mostly invest in US ETFs, and I have recommended these ETFs many times on this blog. I consider US ETFs to be the best available ETFs. I have talked several times about what makes them great in various articles. But since I still get many questions, I will go into all the details of these US ETFs.
I am talking about Exchanged Traded Funds (ETFs) that invest in the United States. I talk specifically about ETFs from the United States. What matters here is the domicile of the ETF. This is more important than many people realize.
So, here is what makes these US ETFs great.
Availability of US ETFs
First, we need to address the issue of the availability of US ETFs, or lack thereof.
If you are in the United States, you will not have any issues. However, if you are in Europe, this is another story. Indeed, due to European regulations, many countries lost access to US ETFs.
In fact, in 2018, all the countries part of the European Union lost access to US ETFs. This is due to the PRIIPS regulations. These regulations are part of a bigger package known as MiFID II. These laws force the fund providers to provide a Key Investor Document (KID) in the investor’s language. And so far, US fund providers have not provided them, and they are unlikely to do it. So, for now, European investors cannot invest in US ETFs.
In theory, these laws protect investors by giving them more information on the instruments they are using. However, in practice, they are only here to force people to invest in European funds.
However, Switzerland is not part of the European Union. Therefore, Swiss investors still have access to US ETFs. However, this may change when the Swiss equivalent of the European laws enters into effect. Now, it is not entirely clear if this will apply to foreign brokers (like Interactive Brokers) or not. But for now, we are free to use these ETFs.
I believe these restrictions will not apply to execution-only brokers like Interactive Brokers. So, they should still be available in the future.
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Furthermore, not every broker gives us access to these ETFs even though they could do it by law. For now, only foreign brokers, like Interactive Brokers, give access to these ETFs. This is good since Interactive Brokers is the best broker for Swiss investors.
If you want more information on these regulations, you can read my article on the availability of US ETFs.
US ETFs have lower fees
The first advantage of US ETFs is that they have lower fees than their European alternatives.
What matters to us is the Total Expense Ratio (TER) of the ETFs. The TER is the total fee you pay for holding the money. This fee is expressed in percentage and is removed from your money over the year. So, if you have a TER of 0.1% and 100,000 CHF in the fund, you will lose 100 CHF each year to fees.
Since you will pay the fees each year, it is important to optimize them. If you are a passive investor, ongoing fees are the most important cost you can optimize. So, it is important to do it well. And the more money you have in the funds, the more fees you will pay.
We can compare a few ETFs to see the difference in fees:
- Vanguard S&P 500: The US ETF (VOO) has a TER of 0.03%, while the European ETF (VUSA) has a TER of 0.07%, twice more expensive
- Vanguard World: The US ETF (VT) has a TER of 0.08%, while the European ETF (VWRL) has a TER of 0.22%, almost three times more expensive
- iShares S&P 500: The US ETF (IVV) has a TER of 0.03%, while the European ETF (IUSA) has a TER of 0.07%, twice more expensive
- iShares World: The US ETF (URTH) has a TER of 0.24%, while the European ETF (IWRD) has a TER of 0.50%, twice more expensive
As you can see, the TER of European funds is significantly higher than US ETFs. Over the long term, this will make a significant difference in your returns.
When you are investing in ETFs, investing fees are not to be ignored. And this is especially true if you want to retire early based on your portfolio.
US ETFs are more tax-efficient
The second advantage is even more significant, but it is also a bit more complicated and is only for Swiss investors. Indeed, US ETFs are more tax-efficient for Swiss investors.
This tax efficiency is based on the way dividends are taxed. Especially how the US taxes dividends of US companies.
By default, the US government will tax 30% of the dividends emitted by US companies to foreign investors. Now, Switzerland has a tax treaty that reduces this withholding to 15% for Swiss investors, the same amount withheld for US investors. And moreover, we can reclaim the 15% left on our tax declaration.
But when we use an ETF in Europe, the dividends will be withheld before reaching the fund. For instance, if you invest in an ETF from Ireland with Coca-Cola shares, you will lose 15% of these dividends directly. But if these dividends are paid to a US fund, there is no loss!
This advantage is essential since US stocks make up 50% of the entire world stock market. Saving on the dividends of these stocks is very important.
The second-best domicile for ETFs after the US is Ireland. So, if you do not have access to US ETFs, Ireland (IE) ETFs are the next best thing.
Overall, how much you save will depend on the yield of the ETFs you are using. For a 2% yield, you will save 15% of 2%, which is 0.3%. So, by using US ETFs, you can save up to 0.3% in fees every year! On a 100’000 CHF portfolio, you can save 300 CHF per year!
However, it is important to know that this deduction can only be claimed when it reached 100 CHF. Below 100 CHF, taxes will reject this deduction. So you will need about 33’000 CHF in US ETFs before you can claim it.
US ETFs are larger
A small advantage is that US ETFs are larger and more liquid. By large, I mean that they are managing more money. Generally, this is exposed as the Assets Under Management (AUM) metric.
A larger ETF has a few advantages over a smaller one:
- It shows more popularity. Larger funds are generally large because they are very popular (people put their money in them).
- It has a lower chance of being closed.
- A larger ETF has a higher trading volume. This has the advantage of the ETF being easier to sell. Generally, they also have a lower spread, which gives you better buying and selling prices.
- A larger ETF can better replicate the index since it will include more small companies than a smaller ETF.
For these reasons, large ETFs are generally better than small ETFs. But this should not be the primary argument in choosing an ETF.
US ETFs are cheaper to trade
The last advantage is that US ETFs are cheaper to trade (with a good broker) than European ETFs.
This is not directly due to the fund itself but rather to the stock exchange they use.
For instance, my primary ETF, Vanguard Total World (VT), is traded on the New York Stock Exchange (NYSE). To buy or sell shares with Interactive Brokers costs me about 0.35 USD. I can buy many shares and still pay less than a dollar for the transaction.
On the other hand, buying 10’000 CHF of my Swiss ETF, iShares Core SPI ETF (CHSPI) on the Swiss Stock Exchange (SWX), cost me 10 CHF! That is about 30 times more expensive than my US ETFs.
And European ETFs are about in the middle of Swiss ETFs and US ETFs. To my knowledge, US ETFs are the cheapest to trade. Now, this may change if you use a service with free transactions. But there are very few good services like this available in Switzerland yet.
Risks: What about the US Estate Tax?
Many believe we should not invest in US ETFs because of the US Estate Tax. And in some cases, this is true. But in practice, for Swiss investors, there is almost no extra risk in investing in US ETFs.
The US Estate Tax law states that the inheritance of US ETFs is subject to a 40% inheritance tax. Nonresident aliens (basically, foreigners outside the United States) are exempted from this tax for assets up to 60’000 USD. After this, foreigners will have to pay a 40% tax.
This means that if you have many US assets, they could lose much value when you pass away, and your assets go through inheritance. You do not want this to happen to your estate.
However, many people miss that Switzerland has an estate tax treaty with the United States. And this treaty greatly increases the part exempted from this estate tax!
With this estate tax treaty, Swiss investors are exempted from the US estate for up to 11.18 million dollars, prorated to the proportion of US Assets in your net worth. For instance, if US ETFs represent 10% of your estate, 1.118 million dollars (10% * 11.18 million) will be exempted from US Estate Tax!
So, in most cases, Swiss investors do not have to worry about the US Estate Tax! However, it is true that it may complicate your estate. If you have US ETFs, you will need to deal with the IRS.
If you want all the details and many more examples, you can read my in-depth article about the US Estate Tax law. This article also explains how to deal with US estate tax, in the specific case of Interactive Brokers.
What if you cannot use US ETFs?
Unfortunately, many people do not have access to these great US ETFs.
For these people, investing in European ETFs is still an excellent option. Using US ETFs is the best way to invest. However, it is an optimization over European ETFs. There is nothing wrong with investing in European ETFs!
If you want to be optimal, you must go with US ETFs. Now, it could be difficult (or even impossible) to use these ETFs. Even for Swiss investors, few brokers let us access them. If you do not want to go the extra mile and want to invest in good ETFs with lower effort, European ETFs are great!
What matters most is investing, not investing optimally!
What about mutual funds?
In this article, I have talked very specifically about US ETFs, but what about funds?
US mutual funds are also great. But it is interesting to know that Swiss mutual funds can also save you dividends. Indeed, funds are very different from ETFs in how they are held.
With a fund, each investor goes indirectly. With an ETF, you go through a broker who holds the shares in your name.
This allows the fund to be more efficient directly depending on the treaty. So, a Swiss-domiciled mutual fund is as tax-efficient as a US-domiciled ETF. Of course, the Swiss mutual funds will likely have some other disadvantages (smaller and more expensive, mostly), but it is good to know that the main tax disadvantage of European ETFs is not present in Swiss mutual funds.
Conclusion
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As you can see, there are many strong reasons to invest in US ETFs instead of European ETFs! These ETFs will let you save a significant amount of money in fees and taxes.
80% of my portfolio is invested in Vanguard Total World (VT), a US ETF. The rest is invested in a Swiss ETF for my home bias portion. So, I invest a considerable portion of my money into US ETFs. This is because I consider these ETFs to be the best available for Swiss investors.
However, these ETFs are more difficult to use. Investors from the European Union cannot invest in them anymore, and in Switzerland, only a few brokers let you use them.
As I mentioned, US ETFs are an optimization over European ETFs, but they are not a revolution. If you cannot (or do not want to) invest in US ETFs, investing in European ETFs will be a great way to invest!
If you want to start trading US ETFs, I recommend using Interactive Brokers. It is an excellent broker that lets you trade US ETFs with very low transaction fees. I have a guide on investing with Interactive Brokers.
Are you investing in US ETFs?
Recommended reading
- More articles about Investing Fundamentals
- More articles about Investing
- How to file your taxes with Swiss and foreign securities in 2025
- What is the Efficient Market Hypothesis (EMH)?
- Think and Grow Rich – Book Review
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Hi Baptiste,
Thanks again for the great content you provide!
I realised the ETF I am using in IBKR for Nasdaq is in USD but domiciled in Ireland.
Based on your article, would the below considerations be correct?
– Even if the Nasdaq ETF is accumulative and the dividends are not paid to me directly, the 15% withholding tax still applies at the fund level. Example $1 dividend → $0.85 reinvested into the ETF (after 15% U.S. withholding tax).
– The 15% tax only matters on dividends paid
If that’s the case, I would start buying a US domiciled Nasdaq ETF while I would need to clarify the below:
– Where do you look for these ETFs? I am looking at the below criteria but I couldn’t find one – also considering justetf .com seems to work only with LU and IE
– Unhedged + Accumulative + Full replication + US Domiciled + USD + following Nasdaq + available in IBKR
– Would you sell the positions in the current ETF to switch on the US based?
– The 34k CHF (38k USD) to be eligible for the deduction is based on the total amount of investments in US domiciled Stocks?
– e.g. CHF – 15k S&P 500 | 15k Nasdaq | 5k Tesla would it work?
Thanks a lot for your time!
Hi Laurent,
Your considerations are correct: 15% will be lost before accumulation. So, no difference between accumulation and distribution.
As you said, justetf only works european ETFs. I use a combination of Google, etfdb and morningstar to get infomration about ETFs. Or I directly look at Vanguard and Blackrock lists of ETFs.
Yes, you must get a total of 100 CHF in US dividends withheld. So, it can be multiple ETFs, no issues.
Hi Baptiste,
Thanks a lot for your answer!
In order not to lose this 15%, would you sell the positions in the current ETFs in IE to switch to the US based?
As I’ve got multiple of them, how would you calculate if it is worth to sell and buy them again or just leave the ones I have while buying the US ones going forward?
Finally, I was reading most of the US ones are not accumulative but on distribution. Is this really the case also based on your experience?
Thanks a lot for your support! Really appreciated it!
Hi Baptiste,
thanks for the great article.
One question on VOO and VT. When I buy on IB VOO or VT (ARCA exchange), are the dividends automatically reinvested in the stock or they are paid out in cash?
Is there a possibility to have the dividend reinvested automatically in the stock (I think you wrote about these accumulative stocks) on IB?
Thanks, Eduard!
Dividends will be paid in cash.
IB has an option to reinvest dividends, where they will buy full shares if the dividends are high enough for that. But I have never used that feature myself.
Hi, I have a very specific question: – I am a European citizen and have been living in Switzerland for over 10 years. – I have residence permit “C”. My tax residence is unique in Switzerland. The question is: will Interactive Brokers accept my W-8BEN form in that case? Thank you very much for your kind reply. Kind regards and great blog.
Andrew
Yes. As long as you are a resident and your sole tax residency is Switzerland, you will be good.
Grazie mille per la tua gentile risposta.
Ottimo lavoro, ti seguo sempre.
Saluti
Andrea
I still struggle to intellectually understand the risks involved. OK I get it if Trump junior 2028 decides to fully isolate USA from global financial markets and confiscate all my investments: I could lose my US ETF (VT) because I dont own the underlying companies. Right?
What if I have bought Nestle and Coca Cola stocks in IB? Does it make a difference if I own them via IB or Swissquote?
The risk you are outlining is really small. Countries want other countries to invest in their economies. The risk is greater from European/Swiss regulations preventing us from investing in these funds.
In the worst possible case, a country could get rid of its foreign shareholders. But again, I do not see this happening. But in this case, I guess it makes no difference whether that’s from IB or Swissquote.
Hi
thanks for the post. How do you claim the deductible?
thanks!
Hi Ajni
Through a DA-1 form on your tax declaration: How to file your taxes with Swiss and foreign securities in 2024
Hi Baptiste. Thanks. Two more questions:
– Wouldn’t it be the same as investing in an Ireland ETF? Withholding tax there is also 15%.
– Considering Swiss banks fees, even if Saxo Bank for example has gone down by a lot, you still pay 0,23% per trade. Would you use Interactive Brokers even if it is not Swiss?
1) I explain in this article why it’s not the same with an Ireland ETF.
2) I have been using IB for almost 7 years now. Also, Saxo is not 0.23% per trade, but 0.08% per trade on US stocks/ETFs.
Many thanks for this blog.
I wonder about your opinion on UBS ETF (IE) MSCI World UCITS ETF (hedged to CHF) A-acc (ISIN IE000N6LBS91).
On the downside UCITS and TER 0.13%.
What’s your take on the upside?
I don’t see much upside. As far as UCITS-ETF goes, it’s decent if you want an accumulating ETF and hedged ETF, but I personally prefer unhedged and distributing :)
But if you want an UCITS ETF, hedged to CHF and accumulating, then it’s a decent choice.
Hello Baptiste,
Congratulations on this amazing blog. It really helped with starting my investment journey in Switzerland.
Do you have any guide on the process/form needed to claim the residual 15% US Withholding tax on ETF dividends during the yearly tax declaration?
I live in the Basel Stadt canton.
Hi Fede
Thanks, I am glad this is useful.
I do have a guide on that yes: How to file your taxes with Swiss and foreign securities in 2024
Hello and always congratulations for this great blog.
Speaking of US ETFs in general, the real disadvantage could not be an extreme event like a war.
As for Russia where all Russian ETFs have disappeared, would we really be protected, if the US government wanted to cash in on our investments? US funds on IBKR for example, are they really protected?
I admit that it is a bit extreme situation :-), but in thirty years what do you know?
Hi Frank
That’s a fair point. ETF from Russi and shares from Russia have not disappear, we simply cannot access them anymore. And it’s because of Russia directly, but because of the sanctions.
In case of a global war, this would not happen, I think, but prices will fall significantly. And we will probably not care much about investments.
However, if the US were to enter war with another country, there could be sanctions, and we could lose access to our ETFs. But that seems less likely with the US being such a financial place.
On the other hand, there is not much we can do about it. If we use funds from another country, the same could happen. At this point, I do not think this is a risk for US funds, but it may change in the future and we may have to revise.