A new product from Macquarie Bank is the first of its kind to provide investors with a high level of exposure to an Australian share market fund without the risks usually associated with margin calls.
The new product, called the Macquarie Sharemarket Lending Facility, is unique in the way investors can borrow up to 80 per cent of the value of their investment.
Macquarie Bank associate director Mary Thompson says this compares with the 40-to-70 per cent lending facility of typical margin lending products.
At the same time, the risks are lower, she says.
Firstly, the money is invested in an index fund. This means that while providing diversified exposure to the Australian equities market, the fund should turn in a predictable performance broadly in line with the All Ordinaries Index and it should incur lower management costs because of its passive nature.
Thompson adds that there are smaller risks to face if the value of the share investment slumps. Margin call products require a payment to be made the day following a fall, but Macquarie’s product requires a monthly payment to be made and only when the ratio of the loan to the market value of the investment rises above 95 per cent.
The monthly repayment is only one per cent of the outstanding loan balance – made until the ratio falls back below 80 per cent – and the amount will always be substantially lower than that repaid immediately on margin call products.
If the market slides, pushing the ratio over 85 per cent, but not above 95 per cent, any quarterly distributions will be credited to the loan.
