Alternative trading platform Chi-X Australia has several plans in the pipeline specifically targeted at the SMSF sector, including warrants and indices to create exchange-traded funds (ETF).
“On 23 November we launched an alternative warrants market with a view to grow this market because I think it’s not well understood by a lot of investors, yet they offer SMSFs the ability to borrow and get leverage within their super fund by using instalment warrants,” Chi-X Australia chief executive John Fildes told selfmanagedsuper.
“Secondly, it gives them downside protection or upside leverage, so we believe warrants are a good fit for SMSF investors.
“But in the last year or so when we’ve been developing this strategy, we thought what else can we do to service the SMSF sector?”
In March next year, Chi-X would launch its index series aimed specifically at the SMSF sector to address the diversification challenge, Fildes revealed.
“We haven’t finalised this yet, but we’re probably going to come out with a 100-share index, which will be sector capped so that the weight of banks and natural resources companies will be limited,” he said.
“This will encourage diversification through greater investment in technology, healthcare and services, and sectors that are growing.
“Then in April we’re going to launch our own ETF trading platform and we’re working with the big ETF issuers to build ETFs based on our indices.”
He said the indices would provide a better benchmark for retirement than what was currently available.
“We have lots of plans to develop life-cycle indices and there are all sorts of things we want to do here to build this ecosystem,” he said.
“We’ll develop the indices based upon advice from an advisory board that we’re in the process of putting together with people who are very knowledgeable about the goals of SMSFs and their retirement horizons.
“Then we will work with the ETF issuers to help them build ETFs around our indices and we’ll charge a lot less than S&P does.”
Fildes said he expected Chi-X to create life-cycle indices for four or five different age groups, which would be balanced but include a fixed income component as well.
“At the very least, we’d look to get 10, maybe 20 ETFs that will really play to SMSFs,” he said.
“That’s before we look at international opportunities and smart beta, but over the years I can easily see it developing to a 50 to 100 ETF market, so similar in size to the number available in Australia today.”
According to Fildes, the lack of diversification in SMSF portfolios was an ongoing concern, which meant Chi-X’s offering would be compelling.
“A low to negative return environment is what’s going to wake people up,” he said.
“When they get to the end of the financial year and their equity portfolio has gone nowhere, in fact it’s gone down, how do they earn any money?
“That’s when they will be saying to their advisers what can they do because they don’t want to take on risk necessarily, but how can they just get more return – the answer is diversification and investing internationally.”