It was interesting to see the the CityIndex application pack included forms for opening a CFD trading account on behalf of a superannuation fund. Although the trust deed of our SMSF is probably broad enough to allow 'investing' in CFDs, I wonder how the trustees (DW and I) could justify trading such highly geared instruments within our investment strategy? Rather than purely speculative day trading CFDs, you'd have to execute a much more considered strategy with controlled risk - possibly pairs trading, commodity stripped investment in mining companies, or some such.
I don't think we'll use CFDs as part of our superannuation investments, but I may do some modelling to see 'what if' you used CFDs as a highly geared way to invest in the stock market index. For example, if you invested half you funds in a high-interest online cash account, and used the other half to invest in index CFDs (buy-and-hold, rather than trading), how would you have fared
over various 10-year periods since the 1970s? CFDs have an implicit interest cost of the overnight cash rate + 2%, so I should be able to get daily data for the AllOrds Index and cash rate since 1970. It will be interesting to see how this strategy would have performed in different market conditions, and the effect of the proportion of total funds invested. To much invested in CFDs would probably see your account wiped out by margin calls, and too little would see your fund return remain close to the cash rate.
Subscribe to Enough Wealth. Copyright 2006-2008