ETF Barclay's iShare ETF

Hi NatMarie73,

It's something I considered, but decided (for the moment) not to proceed with.

I think what you're essentially doing here is picking sectors/markets in a broad sense, as opposed to individual stocks.

If you think you're better at 'macro-selection' so to speak (ie. picking the next 'hot sector'...essentially a timing decision) than the 'micro-selection' of picking individual stocks (if you use FA), then it may suit you.

It's still a very 'active' investment process though, and requires a fair bit of research to become confident with your selections...otherwise it's no different to gambling!

I like your 'kid in a lolly shop' comment - that's exactly how I felt too!

I haven't proceeded due to two reasons:

(1) It's too 'active' for me at present, and I don't have the time to do the necessary research to be confident of my selection decisions.

(2) I don't understand currency/exchange rates very well, so I don't think I could manage this risk well at all !

I do however use a passive index fund/ETF investment approach.

Good luck with it.

 

This may or may not be relevant, but here's a thread talking about 'fixed exchange rates' that I brought up on SS a couple of years ago...

Fixed interest and fixed exchange rate loans - Somersoft Property Investment Forums

 

Thanks JIT, I remember that SS thread but it was a good refresher. I have decided not to proceed with any investment at the moment because well basically - it is too volatile for me and with currency risks thown in the mix I would prefer to wait and see what the $US does over the next 8 - 12 months before I jump in.

I have pretty much decided my next move will be to top up my Navra holdings and invest in a small co blend fund that also pays high income to offset increased property losses.

But... I will definately be investing in some ishares and powershares products when I can despite the added risks because I am really crappy at picking the next hot share and prefer to just diversify over a number of sectors outside of shares eg metals, agriculture, oil, currencies and commodities.

 

"(2) I don't understand currency/exchange rates very well, so I don't think I could manage this risk well at all !"


Currency trading tutorial on the foreign exchange market – forex education for the forex trader.

 

I am getting very close to starting to invest in ETFs on other exchanges. I will probably go through http://www.interactivebrokers.com/. They offer $6 on trades up to $7500 for ASX shares and similar sorts of rates on exchanges around the world. You can easily buy the overseas ETFs on margin so that the currency risk is only on the profit/loss not on the entire amount invested, and the interest rates on the margins loans are not only very competitive in Australia, but if you borrow in a different currency you pay the interest that they would pay. e.g. if you want to buy a Japanese ETF (i.e. an ETF listed on Japanese stock market - not necessarily one that invests in Japanese stocks), you would only pay interest at around 2% at the moment. Anyway I'm planning on posting more about my strategy when I am closer to finalising it.

 

naz,

Clarify your belief for me.

Are you saying that you if you deposit money in another country and trade that exchange (say Tokyo), you think that only the profits and losses have a currency risk and not the whole account??

Or am interpreting what you wrote incorrectly?

The Stig

 

From what I understand, the way investing in overseas markets works with interactivebrokers is that either
a) you exchange AUD to the target currency (this is not what I was referring to - if you did this the whole account would have a currency risk) or
b) you borrow the foreign amount in foreign currency and buy in foreign currency. e.g. borrow US$1000 to buy US$1000 of shares on the NYSE. When you sell, you pay back the loan with the proceeds. Therefore if you sold at US$900 you would loose US$100 and you would only convert that US$100 to AUD. Similarly if you made a profit.

Of course you would have to pay interest on the loan but you can get interest rates quite low in some other currencies (e.g. see Interest & Financing and click on the third tab ‘Interest Charged’)

Hopefully my belief is not wrong - although I haven't started this strategy yet - better to find out now

 

That's all well and good if you have income producing in that currency.

If you don't have income in that currency you have to make repayments from your other currency and you have risk there.

Also, how do you get a loan from someone in the US for someone in Australia?

Other than all of that, I like the possibility of the idea.

Cheers
The Stig

 

Well I'm planning on investing in some ETFs. They should give me some dividends that can go towards repaying the loan and hopefully I will be able to capitalise the rest of the interest repayments.

I agree it is not without risk but it seems to me to be a pretty good deal.

The broker I was referring to (interactivebrokers) lend Australians foreign currency at the interest rate applicable to that currency - see the link in my previous post. This is <4% for some currency from some countries (e.g. Japan, Hong Kong and Switzerland).

 

Hi Everyone

I am just getting up to speed on all the recent discussions on ETF's, Index Funds, Passive vs Active and the core-satelite strategy.

Everything has made sense so far, but I was getting thoughts exactly as expressed above. I was getting the impression that passive "core" could be made up of a selection of ETF's, but isn't the process of selectiong the relevant ETF's still an active decision?

I would think it is very important how you select your "core" /passive investments.

How would someone starting out go about selecting the core investments from all the available ETF's you guys are starting to talk about?

thanks

Dan

 

Well if you're talking about an ETF which tracks the ASX then your limited to 3 choices - tracking the ASX 50, ASX 200 or ASX 200 LPT's.

 

Hi

I never actually mentioned tracking anything. That is exactly my question.

Are you saying that the core (buy/hold/forget) should be basesd on one of those ASX indexes, then every other ETF mentioned are part of the satelite/active areas?

I am trying to understand what the core should be made up of and what areas you then can look at for satelite.

And I guess, is there such a thing as a core set of funds/shares/ETFs that can be purchased and forgotten forever, or is there some active work to be done at all times, including on your core?

 

ETF's track an index. That's what they do. It just depends which index they track. The 3 mentioned earlier, STW, SLF and SFY all track different Aus indices. The iShare ETF's all track different indices, 'Global', 'Emerging', Hongkong, Singapore, Taiwan, Europe 350, S&P 500 etc. They just track different indices.

Generally the core is made up of Australian stocks. Then you can add global exposure, or specific areas like US, Europe, Asia etc, or even specific countries.

You shouldn't forget anything forever. No matter what portfolio you decide on, you should check it atleast annually to make sure that it is still heading in the same direction you are (forward hopefully). You could just leave it and never think about it if you wanted to and if you did want to do this then index tracking stocks are definitely the way to go.

BR

 

Thanks for the reply guys.
That clears a few things up for me.

Dan

 

My apologies to all and sundry.