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Positive Geared Warrants

Discussion in 'Shares' started by Simon, 23rd Jun, 2006.

  1. Simon

    Simon Well-Known Member

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    17th Sep, 2005
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    Newcastle
  2. Dave

    Dave Well-Known Member

    Joined:
    17th Aug, 2005
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    Hi Simon,

    I saw a similar article to that a while ago, and also found it quite interesting. I think it's quite a sound long term strategy, especially for SMSF's cuz it's good leverage without borrowing.

    The only 2 risks that I can see are:
    1) If a dividend is smaller than expected, do u have to chip in part of the 'payment'?
    2) Warrants are provider based, meaning that the providers dont necessarily have to provide reasonable prices, or exist tommorow. Although, I'd Macquarie, Citigroup etc will be around for a while :D I heard someone that Warrants may switch over to an 'exchange traded' system in the next couple of years and I think they'll be more 'reliable' (for lack of a better word), then.

    Installment warrants are another way to go, as they are heaps cheaper than the underlyings, but still entitle full dividends direct to you (not to pay them off like the self funded ones you're talking about). There is an ASX article about them here http://www.asx.com.au/investor/warrants/news/dyp_portfolio_study.htm where they supposedly got ~20% return pa for the previous 2 years.

    I considered doing this, and "papertraded" it for a while, but found that just margin lending into shares and paying the margin off with the dividends provided comparable results but is simpler.

    Good luck.