I’ve just been reading about TraCRs available on the CHI-X exchange. I hadn’t heard of them before. A google search brought up an article a couple of years old predicting they would be a game-changer for SMSFs, a prediction like many unrealised? Any thoughts on them compared to direct investment in US shares? How does Deutsch benefit from these products? How is it making a return?
A: TraCRs (or transferrable custody receipts) allow you to buy US shares in Australian dollars in Australia. They trade on Chi-x (which is an alternative exchange to the ASX). This is seamless to most investors – you just place your order through your broker’s online investing platform. They settle on CHESS. There are around 30 companies quoted.
For example, you can buy a share in Amazon under the code TCXAMZ. It will be quoted and settled in Australian dollars. While you aren’t technically a shareholder in Amazon, you will have the same entitlement to dividends, and upon payment of a small fee, you can convert the TraCR to an underlying share.
Deutsche Bank is a market maker, whose job it is to make sure that the TraCRs trade close to the underlying share value. So for example, if Amazon shares rise by 2% on Wall Street, the TraCR here should also go up by around 2% (assuming the Aussie dollar doesn’t move).
What do I think? You are right, it does make it really easy to invest offshore, and for SMSFs, they don’t need to open up a separate international share trading account or purchase foreign currency. The main issue locally is going to be liquidity – and when I looked today at the spread between the bid and offer, it was around 1.25% to 1.5%. Also, while CommSec and CMC clients can access Chi-X, not all brokers offer this service. Early days.