The arrival of transferable custody receipts (TraCR) in the Australian market early next year will provide a new and significant investment opportunity for SMSFs to own and trade the top United States-listed companies on an Australian exchange in Australian dollars.
Alternative trading platform Chi-X Australia is aiming to launch the exclusive trading of TraCRs on 7 February 2017.
For the first time in the Australian market, investors would be able to invest in some of the world’s biggest companies in Australian dollars on an Australian exchange and be protected by Australian regulations, Chi-X Australian chief executive John Fildes said.
“They’re effectively a depository receipt over US stocks, but TraCRs are not sponsored by the underlying company because companies like Apple, for example, aren’t going to bother with the hassle of listing all of their stock in Australia just to raise a bit of capital. They can get all the capital they want through US investors and indeed international investors can get access to the US to get Apple shares,” Fildes told selfmanagedsuper.
For the average retail investor and even SMSF investors, it was still complicated and off-putting to invest in US equities, he noted.
“Sure, you could do it through CommSec or NAB, but there’s a lot of paperwork involved, there are still very high FX (foreign exchange) charges – anywhere from 60 to 95 basis points. Then there’s the complexity of not knowing when your trade is being executed, unless you’re going to stay up until midnight you’re not going to trade it live, and then not knowing where your shares are held, you don’t know whether you get voting rights in the share and you don’t know what happens to your dividends, but they certainly don’t get paid in Australian dollars,” he said.
“Whereas with TraCRs, they will be traded on Chi-X exclusively and we’re a regulated stock exchange in Australia, they are traded in Australian dollars, traded during Australian hours, the custody is in CHESS (clearing house electronic subregister system) and it pays out Australian dollar dividends.
“We haven’t announced what stocks it will be launched with, but we’re aiming towards technology stocks because that’s what people are most enthusiastic about.”
An advantage of TraCRs is that they will integrate with the accounting systems being used by SMSFs.
“It’s an ideal product for SMSFs and it will be easy for their SMSF adviser, accountant or auditor to track the investment,” Fildes said, adding the website would be linked to the SMSF’s broker of choice to enable immediate trading.
“I recently spoke to SMSF investors in their 60s and they had all been really keen on TraCRs and investing in US healthcare companies and they were asking about whether we’d have specific companies they were interested in investing in.
“This is going to make it easy for people to build their portfolios – we think it’s a great product for retail investors who want to diversify their portfolios and it’s particularly good for SMSF investors because it’s easy from an audit perspective.
“Let’s be clear, you do have US dollar exposure and this is going to move based upon the Australian dollar value of the underlying US dollar price – so you’re not getting rid of your US dollar exposure, but you’re managing it in Australian dollars, you get paid your dividends in Australian dollars and if you sell it, you get Australian dollars, but it’s going to be just as easy as trading BHP.”
The Australian Securities Exchange attempted to launch the product about five years ago under the name UDRs, or unsponsored depository receipts, however, it did not receive approval.
“We’ve been working very hard to satisfy the Australian Securities and Investments Commission’s (ASIC) requirements and we’ve been able to achieve something with ASIC,” Fildes said.