Colonial First State launches new geared index options

The new CFS Geared Index Australian Share option will allow investors to invest in a basket of Australian listed companies with the aim of outperforming the S&P/ASX 100 Accumulation Index.

It will launch alongside the CFS Wholesale Geared Index Global Share option, which looks to magnify the returns of long-term investors via a diversified portfolio of global shares. CFS said that it will target the performance of the MSCI All Country World Index as a benchmark.

CFS chief distribution officer Bryce Quirk said that the fund continues to see growing interest in passive investments from customers and rising demand from advisers for lower-cost strategies for portfolios with longer investment horizons.

“These funds will allow investors to use leverage to increase their exposure to global or Australian share markets via passively managed investment strategies,” he said.

Mr Quirk added that these new investment options will also allow individual investors to benefit from the savings offered by institutional interest rates, which are typically lower.

“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,” he explained.

Mr Quirk predicted that these new geared index options would appeal to investors with long-term horizons and passive investments, paired with a desire to move beyond relying on the skills of investment managers.

That being said, he noted that geared strategies may not be suitable for all investors.

“Gearing can magnify market gains, but it is essential that investors understand that gearing will always magnify losses if the market falls,” he said.