Buying international shares is easier and cheaper than ever. Exchange Traded International Securities are traded on the ASX, traded in Australian dollars and you don't have to open up a new trading account.
ETIS
Exchange Traded International Shares are a relatively new type of warrant that are traded on the Australian Securities Exchange.
The advantage of trading in ETISs compared with trading international shares through a broker is the relatively lower cost of acquiring them through the ASX. Why? Because there's no need to open a US trading account and you don't have to worry about paying in US dollars as they are traded in Australian dollars. You simply buy and sell them just as you would Australian shares.
You can currently trade an ETIS covering over 35 US listed shares including:
- ETSAPL Apple shares (www.apple.com)
- ETSBRK Berkshire Hathaway (www.berkshirehathaway.com)
- ETSGEL General Electric (www.ge.com)
- ETSDIS Walt Disney Co (http://corporate.disney.go.com).
You can find a comprehensive list at RBS
The big difference
Apart from being less expensive to trade with ETISs compared with direct share ownership, the big difference is that an ETIS has a warrant structure. That means there is a maturity date or a 'rolling date'. (More from Julia Lee: Trading In A Bear Market)
The first date is in five years. That's when you can exercise your ETIS by either asking to receive the actual underlying stock or taking a cash amount. If you do nothing, the existing series will rollover to the new series which will run for another five years.
Currency considerations
An ETIS is traded in Australian dollars while the underlying stock is traded in US dollars. This means that you need to be aware of currency risk. Generally, if you are trading in Australian dollars and buying overseas shares, if the Australian dollar strengthens, you'll lose money on the currency translation. When you are invested overseas, you usually want to see the Aussie dollar weaken as this means you make money on the currency move.
What fees do you pay?
There are three fees to take into consideration:- RBS dividend fee (RBS are the only issuers so far for ETISs)
- Buy/sell spread
- Brokerage fees (and with Bell Direct, that's $15 a trade).
Let me explain that dividend fee. RBS issues the ETIS, and they way they make money is to take a dividend fee. The dividend fee is equivalent to 50% of any dividend after withholding tax has been paid. Keep in mind though that US stocks offer very little in the way of dividends due to taxation laws. (More from Julia Lee: Financial Year 2011: The Scorecard)
So you probably want to focus more on capital appreciation to give you a more attractive return compared with taking dividends. In fact, the three most popular ETISs don't pay any dividends at all (for now anyway).
You probably won't be surprised to see which ETISs are the most popular:- Apple
- Google and
- Berkshire Hathaway.
The minimum parcel is the same as any other ASX listed entity, so you'll need an initial minimum of $500 for each security.
How can you make money
So if capital appreciation is the goal with trading ETISs, there are four possibilities where this might occur;
- The underlying stock rises
- The Australian dollar falls
- Market sentiment moves in the stock's favour during ASX trading hours through either positive news coming out about the stock or a big rise in US futures
- Any combination of the above.
Of course you can also lose money with ETIS if the reverse happens in those scenarios. (More from Julia Lee: Shelter In A Storm)
Do your own investigation for suitability
The list of products that Australian investors can trade continues to grow. This year alone we've seen sector ETFs and even currency ETFs. As with any investment, please look at this information in light of your own personal financial needs, situation and goals.
Happy trading!
Julia LeeEquities Analyst
Bell Direct
