International Diversification: Opportunities and Risks

Swiss investor portfolios regularly weight the home market higher than its share of the global equity market. In the MSCI ACWI IMI, which covers roughly 99 percent of the investable equity market, the US alone accounts for 62.5 percent; Switzerland does not even reach Canada’s share of 3.1 percent (as at August 2026). International diversification spreads assets across different countries and currency areas.

Two issues come with this that do not arise in the home market: exchange rate risk and the taxation of foreign income.

The most important facts at a glance

• Risk spreading across borders distributes a portfolio across markets with different economic cycles. Region-specific risks therefore affect a smaller part of the assets.
• Currency fluctuations of 10 to 20 percent within a few years are normal: they can increase or reduce your return.
• Hedging usually costs money. How much is set by the interest rate differential between the currencies.
• The declaration obligation applies to all securities and credit balances, domestic and foreign. Foreign withholding tax can be credited or reclaimed under certain conditions.
• A discretionary mandate takes over security selection, hedging ratio and rebalancing.

What geographical diversification does in a portfolio

The overweighting of the home market is known as home bias. It concentrates assets in one economic area and one currency, and it does not affect Swiss portfolios alone.

Switzerland has globally active companies such as Nestlé, Novartis and Roche. A portfolio of Swiss securities nonetheless remains tied to one market and one currency, even though these groups earn their revenues worldwide.

While the European market stagnates, Asian markets can boom. American technology stocks often perform independently of Swiss bank stocks. The lower the correlation between two markets, the less they move in lockstep.

This is what geographical diversification does: an event that hits one market affects only the part of the assets held there. The MSCI World Index, for instance, covers 1,280 companies from 23 developed countries (as at August 2026); it holds no emerging markets. Indices of this kind spread assets across many markets but weight them by market capitalisation.

Interest rate levels, valuations and growth rates differ between regions. A globally diversified portfolio is exposed to these differences; a nationally concentrated one is not.

Reading tip: Diversification as the key to minimising risks in the portfolio

Understanding and classifying currency risks

Foreign currency investments bring an additional dimension to the portfolio: exchange rate risk.

Example: Imagine you invest CHF 100,000 in American equities. The exchange rate is 1.00 USD/CHF. You therefore receive securities worth USD 100,000. After one year, your shares rise by ten percent, a welcome gain. At the same time, however, the Swiss franc appreciates to 0.90 USD/CHF. Measured in francs, your USD 110,000 are still worth CHF 99,000. The ten percent price gain thus becomes a loss of CHF 1,000 against your original investment.

Currency fluctuations of ten to twenty percent within a few years are not uncommon. They are influenced by numerous factors: economic developments, central bank policy, geopolitical events and market sentiment.

The Swiss franc is traditionally regarded as a safe haven. In times of crisis, investors flee to the stability of Switzerland. The franc appreciates. This appreciation reduces the return on your foreign investments. Conversely, a weakening franc raises the franc value of foreign currency holdings.

Three types of currency risk work differently:

• Transaction risk arises with specific payment flows. You buy a bond today that matures in two years. The repayment amount is fixed, but the exchange rate at the time of repayment is not.
• Valuation risk relates to the value shown in your portfolio. If you hold a fund or a bond denominated in dollars, its franc value moves with the rate even when you neither buy nor sell.
• Economic risk works through the business. If the Swiss franc appreciates sharply, Swiss companies become less competitive in exports. For groups with subsidiaries abroad too, the exchange rate works through the costs, prices and margins of the business, not through a conversion of the share price.

Currency hedging: effect, costs and strategies

A currency hedge moves between three variables that are linked:

• Hedging effectiveness describes how completely you protect yourself against exchange rate fluctuations. It ranges from no hedging to near-complete hedging.
• Costs are essentially determined by the interest rate differential between the two currencies. Where the foreign currency carries the higher rate, hedging costs money, several percent a year where the gap is wide. Where it carries the lower rate, hedging can earn a return.
• Flexibility means that you can react to changing market conditions. Some instruments lock you in for the long term, others allow adjustments.

The greater the hedging effectiveness, the more those costs weigh. How firmly the hedge ties you in does not follow from its size but from the instrument.

Three hedging strategies are available:

1. The unhedged strategy forgoes hedging. There are no hedging costs, but exchange rate movements pass into the portfolio value in full, in both directions.
2. Partial hedging covers, for example, 50 percent of the foreign currency positions. Hedging costs and exchange rate risk therefore each apply to half of the position.
3. Full hedging largely covers the currency risk. Where the foreign currency carries the higher rate it costs the most of the three variants, and it rules out currency gains.

Hedging instruments for private investors include currency-hedged ETFs. These take care of the complex hedging work for you. Institutional investors use currency forwards or currency options, instruments that are usually too complex and cost-intensive for private investors.

Where the foreign currency carries the higher rate, hedging costs are incurred over the entire holding period and add up more over long periods than over short ones. Over short periods, the exchange rate movement weighs more heavily.

Reading tip: Private equity: an asset class for private investors too?

Tax consequences for Swiss investors

Cross-border investments entail tax obligations.

Declaration obligation: Securities and credit balances belong in the schedule of securities and credit balances in the tax return, domestic and foreign alike. Through the automatic exchange of information (AEOI), the Swiss tax authorities learn of accounts abroad in many cases anyway; the AEOI applies to partner states and to financial accounts at reporting financial institutions.

Investment income (interest and dividends) is subject to income tax. Many countries levy a foreign withholding tax on it. Switzerland has concluded double taxation agreements (DTAs) with most countries. They determine which part of a foreign withholding tax can be reclaimed from the source state and which part can be credited against Swiss tax.

Each agreement sets the rate that may remain with the source state. Anything withheld beyond that has to be reclaimed there. The remaining part can be credited in Switzerland, and the amounts from all source states are combined into a single credit. That credit is capped at the Swiss tax on the same income, requires residence in Switzerland and an application subject to a deadline, and requires the income to be declared gross and to be taxable here. If the non-recoverable taxes for a year come to no more than CHF 100 in total, the credit lapses. For funds domiciled abroad, the withholding tax also arises at fund level and cannot be credited by the investor.

Currency gains in private assets are tax-free as long as there is no commercial securities trading. If an American share is sold at a profit and a favourable exchange rate helps, that currency gain remains untaxed. Conversely, you cannot deduct currency losses for tax purposes.

Swiss withholding tax (Verrechnungssteuer) of 35 percent is levied on Swiss investment income, not on foreign income. With residence in Switzerland the tax can be reclaimed if the income is declared and the application is submitted within three years of the end of the year in which it fell due. After that the claim lapses.

The transfer stamp tax (Umsatzabgabe), one of the stamp duties, is due when a domestic securities dealer is involved in the transaction, on purchases as well as sales. It amounts to 1.5 per mille on domestic and 3.0 per mille on foreign securities, with half of the tax falling on each contracting party. For the investor that is 0.15 percent on foreign securities, so CHF 150 on CHF 100,000. Without the involvement of a domestic securities dealer, the tax does not arise.

Declaring foreign income is more laborious than declaring domestic income. A discretionary mandate usually includes tax reporting that compiles the information needed for the tax return.

Practical implementation of international diversification

International diversification works on four levels: regions, sectors, asset classes and company sizes. It is often implemented through broad index funds.

• Regions are weighted by market capitalisation in globally diversified indices. In the MSCI ACWI IMI, the US accounts for 62.5 percent, Japan for 5.7 percent, Taiwan for 3.3 percent, the United Kingdom for 3.2 percent and Canada for 3.1 percent (as at August 2026). Market capitalisation is one of several possible weighting logics, not a target.
• Sectors do not react to the same market movements at the same time. Technology, healthcare, financials, industrials and consumer goods develop differently. In the MSCI ACWI IMI, information technology alone accounts for 29.6 percent.
• Asset classes behave differently in relation to each other. Equities, bonds, real estate and commodities do not fluctuate in lockstep. In crisis phases, however, correlations between asset classes rise, precisely when the diversification is supposed to work.
• Company size affects tradability and fluctuation range. Large caps are traded in larger volumes, small and mid caps fluctuate more.

Within the regions, developed markets and emerging markets differ. Developed markets show higher trading volumes and tighter bid-ask spreads, while emerging market equities have historically shown higher price fluctuations. The MSCI ACWI IMI factsheet lists no countries individually besides the US, Japan, Taiwan, the United Kingdom and Canada; all others together account for 22.2 percent, developed and emerging markets combined. The US share of 62.5 percent means that a market-capitalisation-weighted global portfolio depends heavily on a single market and a single currency.

ETFs as an implementation instrument replicate an index, including its weighting, with a single security. What the fund management costs each year is stated as the total expense ratio in the fund’s factsheet.

Without rebalancing, the weighting of a portfolio shifts with market developments. If one region has performed better than the others, its share grows beyond the original target weighting. Rebalancing restores the initial weighting by reducing the more heavily weighted positions and topping up the more lightly weighted ones.

Reading tip: Private markets: New opportunities in the asset class for exclusive investments

Everon as a partner for international wealth management

Investing globally requires ongoing security selection, a hedging decision and regular rebalancing. Everon takes over this work under a discretionary mandate.

As a FINMA-authorised wealth manager, we are subject to the FinIA and to ongoing supervision by a supervisory organisation that audits us periodically. Our investment strategies are developed and monitored in line with the regulatory requirements.

Systematic, not situational: Our quantitative approach sets the selection rules in advance and applies them independently of market sentiment. The in-house Everon Portfolio Engine analyses securities worldwide and scores them against defined factors. The investment universe is global and not restricted to the home market.

Three international strategies are available:

1. The Smart Global Markets Strategy tracks global market developments. We use ETFs and index funds with a focus on quality and momentum. From defensive (20 percent equities) to dynamic (100 percent equities), we adapt the strategy to your risk profile.
2. The Multifactor Strategy invests systematically in international equities, bonds, real estate and commodities. Our multifactor model evaluates each security against several criteria and aggregates these into an overall score. The strategy diversifies across asset classes and regions.
3. Private Markets open up access to international private equity, private debt and private real estate investments. These alternative investments used to be reserved for institutional investors. We use only semi-liquid products.

Currency management is part of the mandate. Depending on market conditions and risk profile, we adjust the hedging ratios and execute the foreign exchange transactions.

The management fee is set out in the mandate agreement. Custody and transaction costs are charged separately by the custodian bank.

The Everon App displays the internationally diversified portfolio at any time. Onboarding, risk profiling and portfolio overview run through the same application.