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Saturday, 19 July 2008
Makes you wonder about all the mistakes they don't fix up
DS2 has a retirement (superannuation) account with ING that I opened on his behalf in November 2006. There haven't been any transactions on the account since the initial $1,200 deposit, and the value of the account had only increased slightly to $1,289.48 by 30 June 2008. It was therefore a bit of a surprise to get a letter from ING yesterday stating that a recent "review [of] our processes, controls and systems" had "identified an additional value" of $26.80 that will now be credited to the account as an adjustment. While I'm glad that they've apparently found a mistake and are rectifying it, it's a bit of a shock that the required "adjustment" is over 2% of the account balance! It makes you wonder how many mistakes by professional investment managers go undetected.
CityIndex CFD Portfolio
I decided to create a portfolio of CFDs for the ASX20 stocks (top 20 Australian listed companies by market capitalisation), exlcuding the financials. This provided a list of ten stocks and I bought enough units of each stock CFD to give them equal weight in this portfolio. Overall the contracts have a value of approx. $3,000 worth of shares, and the required margin is around 10%. This used up approximately $300 out of the $400 account balance I had before making these trades. Combined with the $100 'credit' allowed on this account it means that these stocks could drop by around 8% before my account would be liquidated (and I'd end up owing CityIndex $100). On the upside, if the market recovers from here, a 10% gain would boost the value of these stocks by around $300, giving me a ROI of around 100%. It illustrates the extremely geared nature of using CFDs for "investing" - hence the reason they are mostly used for speculative day trading.
It will be interesting to see how the interest charges work out in practice. In theory interest is charged on the entire value of the CFD contract (not just the margin value), and the rate is a few percentage points above the RBA overnight cash rate. However, in practice interest charges are debited daily, and on the small amounts due each day on $3,000 worth of CFD contracts rounding to the nearest whole cent could have a significant effect. After one month I'll add up all the interest amounts and work out the effective interest rate being charged. I'm hoping to just hold on to these positions for a long period (rather than actively trading), so the interest charge will be important.
After the latest trades my CityIndex CFD portfolio is as follows:
Although the US and UK markets were up on Thursday night, the Australian market dropped on Friday - mainly due to the resource stocks which are a significant part of this portfolio. Therefore the portfolio had lost $14.72 the first day. If the Australia market doesn't bottom out soon this could be a very short-lived experiment.
It will be interesting to see how the interest charges work out in practice. In theory interest is charged on the entire value of the CFD contract (not just the margin value), and the rate is a few percentage points above the RBA overnight cash rate. However, in practice interest charges are debited daily, and on the small amounts due each day on $3,000 worth of CFD contracts rounding to the nearest whole cent could have a significant effect. After one month I'll add up all the interest amounts and work out the effective interest rate being charged. I'm hoping to just hold on to these positions for a long period (rather than actively trading), so the interest charge will be important.
After the latest trades my CityIndex CFD portfolio is as follows:
Currency AUD
Cash Balance 411.56
Open Equity -14.72
Net Equity 396.84
Credit Allocation 100.00
Margin Requirement 286.89
Trading Resources 209.95
Account Summary
AUD 484.49
USD -85.05
CFD Trades
17 Jul 2008 BHP Billiton (AUD) CFD___ Buy Market _8 @ $38.03 $304.24
17 Jul 2008 Brambles Industries CFD__ Buy Market 44 @ _$7.90 $347.60
17 Jul 2008 CSL CFD__________________ Buy Market 10 @ $34.94 $349.40
17 Jul 2008 Foster's Group CFD_______ Buy Market 75 @ _$4.61 $345.75
17 Jul 2008 Rio Tinto (AUD) CFD______ Buy Market _3 @$117.16 $351.48
17 Jul 2008 Telstra Corp CFD_________ Buy Market 80 @ _$4.30 $344.00
17 Jul 2008 Woodside Petroleum CFD___ Buy Market _5 @ $59.24 $296.20
17 Jul 2008 Woolworths (AUD) CFD_____ Buy Market 14 @ $25.50 $357.00
17 Jul 2008 Wesfarmers CFD___________ Buy Market 10 @ $32.53 $325.30
Currency AUD
Cash Balance 411.56
Open Equity -14.72
Net Equity 396.84
Credit Allocation 100.00
Margin Requirement 286.89
Trading Resources 209.95
Account Summary
AUD 484.49
USD -85.05
CFD Trades
17 Jul 2008 BHP Billiton (AUD) CFD___ Buy Market _8 @ $38.03 $304.24
17 Jul 2008 Brambles Industries CFD__ Buy Market 44 @ _$7.90 $347.60
17 Jul 2008 CSL CFD__________________ Buy Market 10 @ $34.94 $349.40
17 Jul 2008 Foster's Group CFD_______ Buy Market 75 @ _$4.61 $345.75
17 Jul 2008 Rio Tinto (AUD) CFD______ Buy Market _3 @$117.16 $351.48
17 Jul 2008 Telstra Corp CFD_________ Buy Market 80 @ _$4.30 $344.00
17 Jul 2008 Woodside Petroleum CFD___ Buy Market _5 @ $59.24 $296.20
17 Jul 2008 Woolworths (AUD) CFD_____ Buy Market 14 @ $25.50 $357.00
17 Jul 2008 Wesfarmers CFD___________ Buy Market 10 @ $32.53 $325.30
Although the US and UK markets were up on Thursday night, the Australian market dropped on Friday - mainly due to the resource stocks which are a significant part of this portfolio. Therefore the portfolio had lost $14.72 the first day. If the Australia market doesn't bottom out soon this could be a very short-lived experiment.
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Thursday, 17 July 2008
Playing with my CityIndex CFD account
It's gotten a bit boring watching the value of my geared stock accounts drop further and further each day. And in the past couple of days my Forex trading with CMC Markets has also given back the gains I'd made so far in July, and the latest monthly valuation figures for my real estate show an overall decrease.
So with all the doom and gloom around I decided to take my mind off the woeful state of my investments by dabbling a bit more with my CityIndex CFD account. I didn't like my earlier trades of commodities (gold and oil) on this account, as the minimum contract size was too large compared to the modest value of this account ($250 I initially deposited plus another $250 "bonus" money credited by CityIndex for opening the account). Today I thought I'd use the account to buy into the Australian stock market at it's current level, so I hunted around for a proxy for the overall market. The actual ASX200 futures contracts might suit, but I thought I'd start out by simply buying the minimum 1 unit of Australian Foundation Investments Co (AFI) CFD. AFI and ARG (Argo Investments) are listed investment companies that act a bit like a managed fund and perform very similar to the overall market (see the charts below), but with much lower fees than managed funds. The CityIndex stock list included AFI but didn't show ARG, so I decided to buy the minimum quantity if AFI. The stock was trading at $4.64 and the CFD for this stock has a margin requirement of 15%, so buying 1 unit cost $0.69 of my available funds (approx. $411 at the moment). Having confirmed the low amount of money required to buy a unit of this stock, I was intending to top up my holding to 100 or 200 units of AFI if it dropped a few more cents. However, the stocks CFD listing suddenly disappeared off CityIndex screen, and can now only traded by phone! Although CityIndex touts it's web-based trading platform as being much more dynamic that the java app provided by other CFD providers (such as CMC Markets), I'm finding the ability for stocks to be added (and removed) at will by CityIndex to be more of a nuisance than a benefit.
Anyhow, I then bought one unit of Westfarmers just before the market closed for the day. I'm not sure whether I'll buy a few units of various Australian stock CFDs and create a virtual diversified 'portfolio' in my CityIndex account, or if I'll have a go at trading the ASX200 futures CFD. Anyhow, this account only involves a few hundred dollars of 'play' money, and will give me something to fiddle with while ignoring the large changes in the value of my long-term stock and real estate investments.
So with all the doom and gloom around I decided to take my mind off the woeful state of my investments by dabbling a bit more with my CityIndex CFD account. I didn't like my earlier trades of commodities (gold and oil) on this account, as the minimum contract size was too large compared to the modest value of this account ($250 I initially deposited plus another $250 "bonus" money credited by CityIndex for opening the account). Today I thought I'd use the account to buy into the Australian stock market at it's current level, so I hunted around for a proxy for the overall market. The actual ASX200 futures contracts might suit, but I thought I'd start out by simply buying the minimum 1 unit of Australian Foundation Investments Co (AFI) CFD. AFI and ARG (Argo Investments) are listed investment companies that act a bit like a managed fund and perform very similar to the overall market (see the charts below), but with much lower fees than managed funds. The CityIndex stock list included AFI but didn't show ARG, so I decided to buy the minimum quantity if AFI. The stock was trading at $4.64 and the CFD for this stock has a margin requirement of 15%, so buying 1 unit cost $0.69 of my available funds (approx. $411 at the moment). Having confirmed the low amount of money required to buy a unit of this stock, I was intending to top up my holding to 100 or 200 units of AFI if it dropped a few more cents. However, the stocks CFD listing suddenly disappeared off CityIndex screen, and can now only traded by phone! Although CityIndex touts it's web-based trading platform as being much more dynamic that the java app provided by other CFD providers (such as CMC Markets), I'm finding the ability for stocks to be added (and removed) at will by CityIndex to be more of a nuisance than a benefit.
Anyhow, I then bought one unit of Westfarmers just before the market closed for the day. I'm not sure whether I'll buy a few units of various Australian stock CFDs and create a virtual diversified 'portfolio' in my CityIndex account, or if I'll have a go at trading the ASX200 futures CFD. Anyhow, this account only involves a few hundred dollars of 'play' money, and will give me something to fiddle with while ignoring the large changes in the value of my long-term stock and real estate investments.
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Thursday, 10 July 2008
Sold some IPE and bought some IANG instead
I have a large block (for me) of the listed ING Private Equity company IPE, which I obtained last year when the $1.00 options were exercised. Since then the general market slump has seen them marked down severely, to around $0.70 at present. Although the book value of the IPE shares would still be much higher than this, they could continue trading at a discount to book value for a long time, so I decided to off load some of my holding - selling 22,000 of them at $0.70, realising $15,370.05 after Comsec brokerage fee of $29.95. That still leaves me holding 90,000 IPE shares, which I'll keep for the longer term.
I bought 200 IANG shares (IAG (NZ) Reset Exchangeable Securities) for $80.20 each - costing $16,269.95 incl. brokerage.
Overall, these trades will have increased my margin loan debt by $900, but will actually reduce the chance of getting a margin call. The IPE shares only have a margin value of 5%, whereas the IANG shares have a margin value of 80%, so the margin valuation of my portfolio will have increased by roughly $12,000 by making these trades. The IANG shares should also be a somewhat less risky investment than the IPE shares they're replacing - being an investment in a portfolio of high quality, short dated, fixed interest securities (Portfolio) managed by IAG Asset Management Limited (IAGAM). This Portfolio has an Australian Bond Fund Rating of ‘AAAf’ from S&P. It pays a fully franked dividend of 1.2% above the 90 day Bank Bill Rate, which should provide income roughly equivalent to the current margin loan interest cost (tax-deductible) of 10.50%. The IANG shares used to trade around the issue price ($100) plus accumulated dividend, as shown below. However, over the past year they have been deeply discounted by the market to currently trade around 20% below "face value". Since the IANG shares first "reset date" is in a couple of years time (15 March 2010), and the portfolio of bonds currently still has a valuation of $100.70 per share, this discount seems likely to be a temporary "panic" reaction and the shares should recover to around $100 by the reset date (barring any significant defaults in the bonds held within the portfolio). Combined with the fully franked dividend rate IANG seems a safer bet than holding on to the IPE shares they replace.
I bought 200 IANG shares (IAG (NZ) Reset Exchangeable Securities) for $80.20 each - costing $16,269.95 incl. brokerage.
Overall, these trades will have increased my margin loan debt by $900, but will actually reduce the chance of getting a margin call. The IPE shares only have a margin value of 5%, whereas the IANG shares have a margin value of 80%, so the margin valuation of my portfolio will have increased by roughly $12,000 by making these trades. The IANG shares should also be a somewhat less risky investment than the IPE shares they're replacing - being an investment in a portfolio of high quality, short dated, fixed interest securities (Portfolio) managed by IAG Asset Management Limited (IAGAM). This Portfolio has an Australian Bond Fund Rating of ‘AAAf’ from S&P. It pays a fully franked dividend of 1.2% above the 90 day Bank Bill Rate, which should provide income roughly equivalent to the current margin loan interest cost (tax-deductible) of 10.50%. The IANG shares used to trade around the issue price ($100) plus accumulated dividend, as shown below. However, over the past year they have been deeply discounted by the market to currently trade around 20% below "face value". Since the IANG shares first "reset date" is in a couple of years time (15 March 2010), and the portfolio of bonds currently still has a valuation of $100.70 per share, this discount seems likely to be a temporary "panic" reaction and the shares should recover to around $100 by the reset date (barring any significant defaults in the bonds held within the portfolio). Combined with the fully franked dividend rate IANG seems a safer bet than holding on to the IPE shares they replace.
Subscribe to Enough Wealth. Copyright 2006-2008
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