CFS cites adviser demand in launch of geared index products

Just weeks after breaking free of the Commonwealth Bank, Colonial First State (CFS) has made a play for more adviser support with the launch of two new geared index options on its FirstChoice platform.

The company has announced what it is describing as the first passively managed geared investment options to be offered by CFS which it says have been designed to complement CFS’ existing suite of seven actively managed geared funds, adding to its range of index options available on the FirstChoice platform.

The CFS Geared Index Australian Share option and the CFS Wholesale Geared Index Global Share option, offer investors a low-cost way to boost their exposure to Australian or global share markets using borrowing within the investment products.

Commenting on the move, CFS Chief Distribution Officer, Bryce Quirk, signalled it had been generated by a growing appetite for passive investors.

“These funds will allow investors to use leverage to increase their exposure to global or Australian share markets via passively managed investment strategies. Using low-cost index funds as a base, offers the benefits of broad market exposure, low management fees and transaction costs, and systematic processes.

“Our new offerings have also come about as a result of adviser demand for greater access to lower cost strategies, which provide the potential for significant growth in portfolios with longer investment horizons.”

The CFS Geared Index Australian Share option borrows to invest in a diversified basket of Australian listed companies. It aims to outperform the S&P/ASX 100 Accumulation Index over rolling seven-year periods before fees and taxes.

The CFS Wholesale Geared Index Global Share option aims to magnify long-term investment returns by borrowing to invest in a diversified portfolio of global shares. This option aims to outperform the MSCI All Country World Index in Australian dollar terms over rolling seven-year periods before fees and taxes.

The geared index options can borrow at institutional interest rates, which are typically lower than the rates charged on margin loans to individual investors.

“The geared index options manage debt internally, so investors don’t need to worry about margin lending applications or margin calls. There is no debt recourse at the investor level, so the maximum loss is restricted to the value of the original investment,” Mr Quirk said.

He added the geared index options would appeal to investors who have a long investment time horizon and are interested in passive investments that do not rely on the skills of investment managers to achieve the fund’s objectives.