Merrill Lynch Equities has launched a new margin lending product aimed at attracting a new generation of investors to the share market by giving them the opportunity to own a portfolio of blue chip shares.
Called BlueChip20, the product allows participants to have a direct investment in the top 20 stocks on the Australian equities market, with the weighting determined by the S&P ASX Top 20 index.
A minimum investment of $5,000 is required to take part in the product. This amount is matched by Merrill Lynch in the form of an interest only margin loan, meaning the portfolio begins with a balance of $10,000. Interest currently charged on the loan is 8.99 per cent.
Investors are then required to contribute further minimum amounts of $500 on a monthly basis, which again will be matched by the investment house. These additional amounts are then used to buy more of the stocks in which the investor is most underweight.
The portfolio is rebalanced on a daily basis, however a minimum trade size of 2 per cent of the portfolio’s value or $100, whichever is higher, has been implemented to cut down on having to make too many small volume share trades.
The portfolio is also formerly rebalanced when the monthly instalments from investors are received.
“Within the portfolio there is a minimum cash holding of 2 per cent, and what the system will do is check the cash position, and if it is more than 2 per cent it will then invest the money,” Merrill Lynch vice president Derek Bennett explained.
One distinguishing feature incorporated into BlueChip20 to entice new investors is low brokerage fees. Brokerage charged on the product is levied at 0.05 per cent. On the initial transaction it translates to a cost of $5 plus GST. This compares favourably to discount brokers, who charge around $20 per trade.
Administration of the portfolio has also been made easier by the new offering.
“Normally, you would expect reams of paperwork if you bought 20 shares and kept adding to it every month let alone your accountant trying to determine your cost base. But from a client’s perspective, they literally never receive any paperwork,” Bennett said.
“It’s all web-based, so for the administration fee, which for under $500,000 is 0.6 per cent, the client is getting full administration and full online reporting, with prices updated every day. They get to see their loan balance online; they get to see estimated stock yields, dividends they have accrued but haven’t been paid and all their cash transactions. Then, at the end of the year, they can just hit ‘print’ to get a full tax report they can take to their accountant,” he added.
Investors can access the product directly or go through an adviser to do so. Merrill Lynch suggests people seek financial advice before participating in BlueChip20 to ensure the appropriate level of gearing is put in place.
