SMSF trustees becoming more strategic
Self-managed superannuation fund (SMSF) trustees are becoming more strategic within their portfolio to ensure recent downturns are not adversely affecting their retirement goals, according to Capital CFDs.
SMSFs have been allowed access to contracts for difference (or CFDs) since 2007, and according to the head sales trader at Capital CFDs, Ashley Jessen, this change has given trustees a cost-effective and efficient tool for hedging, as opposed to traditional methods such as options.
"If an SMSF holds 2,500 ANZ shares, then traditionally you would need to understand options, time decay and strike prices in order to get insurance or protection over your ANZ shares," he said.
"Whereas, trading the much simpler CFD over ANZ allows you to trade short 2,500 ANZ share CFDs without having to worry about strike prices, time decay and time expiry.
"This is essential during market downturns such as recently when ANZ fell just over 12.5 per cent in 13 days," Jessen said.
Instead of being exposed to a 12.5 per cent drop in ANZ, Jessen said that an SMSF investor positioned via such an 'insurance policy' could have positioned themselves to limit that downside for minimal outlay.
"This explains the growth of CFD trading by SMSF trustees to 'short' their own portfolios to protect the value of the core portfolio in case of a market slide," he said.
Yet for Jessen, the equally important point to consider is that most CFD providers recommend that SMSF trustees use CFDs as an efficient insurance policy, or hedge, only. They do not, for instance, recommend trading for speculation.
"Experienced investors who understand leverage and who are looking to use CFDs for risk protection are well advised to consider this technique further," Jessen said.
"Eurozone announcements that spook investors and drive markets down are all too common nowadays, so investors need to consider all the tools available to limit their downside and protect their profits."
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