Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
TraCRs
Looking to give your portfolio diversification via direct international equity exposure such as the FAANGs (Facebook, Apple, Amazon, Netflix and Google)? It makes sense to invest internationally, as most of the growth that comes from big earners are in other countries. Therefore, the growth potential and risk minimisation benefits are far greater than investing in just Australian equities. For example, by only investing in Australia, you miss out on the large global IT, consumer discretionary and healthcare companies.
International share trading has made it much easier to gain access to companies such as Facebook and Apple, but doing so comes at a substantial cost, added tax implications and currency risks. The fluctuating Australian dollar can positively or negatively impact your international investments as they are not protected against currency movements. Such protection usually requires the purchase of currency options to hedge currency exposure.
This is where a new innovative securities class named TraCRs (pronounced ‘tracers’), which stands for Transferable Custody Receipts, was launched to fill in the gap. Quoted on the Chi-X exchange, these securities provide Australian investors access to the benefits of owning US shares in some of the world’s biggest brands, such as Disney, ExxonMobil and Microsoft. There are now 35 TraCRs available through Chi-X that allow Australian investors exposure to US companies.
| 3M (TCXMMM) ^ | Costco (TCXCOS) | Lockheed Martin (TCXLMT) | Pepsi (TCXPEP) |
| Alphabet (TCXGOG) | Exxon Mobil (TCXXOM) | Mastercard (TCXMAC) ^ | Pfizer (TCXPFE) |
| Amazon (TCXAMZ) | Facebook (TCXFBK) | McDonald’s (TCXMCD) | Procter & Gamble (TCXPAG) |
| Apple (TCXAPL) | General Electric (TCXGEC) | Merck (TCXMRK) | Starbucks (TCXSBU) |
| AT&T (TCXATT) | Gilead Sciences (TCXGIL) ^ | Microsoft (TCXMSF) | The Boeing Co (TCXBOE) |
| Bank of America (TCXBAC) | IBM (TCXIBM) | Netflix (TCXNFL) | Visa (TCXVIS) |
| Berkshire Hathaway B (TCXBRK) | Intel (TCXINT) | Nike (TCXNKE) | Walt Disney (TCXDIS) |
| Caterpillar (TCXCAT) | J.P. Morgan Chase (TCXJPM) | NVIDIA (TCXNVD) | Walmart (TCXWMT) ^ |
| Johnson & Johnson (TCXJNJ) | Oracle (TCXORC) | Zoom (TCXZOM) ^ |
How do they work?
The underlying US custodian (Deutsche Bank) buys and holds the underlying US shares on behalf of the TraCR issuer (also Deutsche Bank). The issuer, who is also the market maker is then responsible for the issuing, redemption and operational management of TraCRs on the Chi-X exchange. (A ‘market maker’ is an individual market participant of an exchange that also buys and sells securities for its own account, at prices it displays in its exchange’s trading system, with the primary goal of profiting on the bid-ask spread.)
Here are the benefits of holding a TraCR:
- TraCRs are traded in Australian dollars – this prevents potential loss/gain due to currency i.e. If you bought overseas shares when the AUD was $0.50, you would have lost a substantial amount if the AUD recovered to $0.69.
- You will have a beneficial interest in the underlying US share. For example if you hold one Apple Inc TraCR, you have a beneficial interest in one Apple Inc share.
- TraCRs can be bought and sold during normal market hours the same way you would trade an Australian share. Cleared through ASX CHESS, TraCRs are registered at a local share registry and settled on your CHESS holder identification number (HIN) on the ASX’s settlement schedule of T+2 (settlement two days after transaction.)
- You receive your dividends in Australian dollars
- TraCRs give you greater portfolio diversification of owning US shares managed through your local broker
- Protected through Australian regulation and ASIC supervision
Having a beneficial interest in the underlying share means you have access to dividends. It also means you have the right to convert your TraCR holding at any time into the underlying share. But the biggest benefit from purchasing TraCRs is that they are traded in Australian dollars, which completely removes the currency risk and the need for the costly currency hedging of each individual global stock. That in itself is reason enough to consider using TraCRs for the international shares part of your portfolio.
