Westpac BlueChip 20 Product Review

By FutureNestEgg | August 13, 2009








Today I am going to do a quick review of a new share investment product launched by Westpac recently It is called Westpac BlueChip 20.

This investment product aims to match or exceed the investments offered by ASX 20 Index (before fees and expenses). The product invests in a representative sample of shares held in ASX 20 Index. ASX 20 index comprises of the largest and the most liquid stocks in Australian Stock Market. Westpac BlueChip 20 is like an index fund – but wait there is a small twist to it. It is an index fund with gearing capabilities.

The minimum initial investment required for the fund is $2500. And from there on you have to make a monthly minimum regular contribution of $250. And if you wish you can also make an additional contribution – minimum for additional contribution is $500. For every investment you make, there is a gearing of 50%. So your initial investment of $2500 will become $5000 (50% gearing – $2500 your contribution and $2500 margin loan). Again your monthly contribution of $250 becomes $500 (50% gearing). You can if you wish reduce the gearing level but the total initial investment has to be at least $5000 and contribution at least $500. So if you want to reduce your gearing then you need to increase your investments accordingly.

2% of the investment will be left in cash and the rest will be invested. All income received by the investments will be invested back into the account.



Tax Advantages


westpac bluechip20 This new product is not a unit trust. Blackrock Investment Management manages this product and operates it as a separately managed account – meaning all the shares will be held in your name. Investors will have direct ownership of the shares – different to a unit trust. This method also has tax advantages – you can claim deductions on the interest payable on the loan.


Most of the blue chip stocks come out with franked dividends and this is again good news at tax time. All the details you need when you file your return is provided by Blackrock and hence you don’t have to worry about any paperwork. They also offer an online facility and so you can see your balance and transaction details at your leisure.



Fees



The brokerage fees are low – it is .05% of the trade value. This fee is applicable for every transaction (whenever shares are bought or sold).

There are two types of regular fees – dealer group service fee and the administration fee – they are .825% and .6% respectively. These two add up to 1.426%. Now, this product is an indexed fund with the gearing capability. For an indexed fund the fees are between .75% and 1%. There is no active picking of stocks for this product – basically the investment manager is investing only in ASX 20 stocks – so it is an indexed fund but of course with some gearing facilities. So I do think that the fees for this product, when compared to indexed funds, are a bit higher.

Apart from these fees, there is also an adviser fee of 1.1% – only payable if you invest through an adviser. If you investing through an adviser, you should negotiate with your adviser and bring this fee down (considerably).



Interest On Loans



The margin loan interest rate at the time of writing this post is 7.99%. There are two ways you can pay the interest:

  • You can pay it every month
  • you can prepay the interest for 6,9 or 12 months

If you prepay interest then you obviously get a discount on your rate – at the time of writing the prepay interest rate for 12 months was 7.7%.

The interest money can be directly debited from your bank account or can come from your regular monthly contributions (the second option is not applicable for prepay option). If you opt for the interest money to come out of your regular contributions, bear in mind that your investment amount in shares is going to reduce accordingly – especially as the interest amount increases after the first month.



Withdrawals and Exiting



If you decide to withdraw money – then there is no minimum amount requirement nor any exit fees – but you do have to pay for brokerage (because shares might have to be sold to cover your withdrawal). Again, if you decide to completely exit from the investment, no exit fees – there are brokerage fees though. If you do decide to exit, you can either take cash out or take the shares (as they are already in your name).



Conclusion



This product is a riskier version of an index fund (but with risk comes returns). You get to increase your returns through gearing – but at levels which mum and dad investors can afford. But with any gearing there is some risk – as long as you are aware of that and don’t expect it to behave like a passive index fund, then you should be okay. And there are also chances of margin calls.

If you have always wanted to do some amount of gearing and invest in blue chip stocks, but at reasonably affordable levels, then you can consider this product.

Please share your thoughts about this product – if you are an investor, let us know what made you pick this product…


Best,







Topics: Product Reviews | 2 Comments »

2 Responses to “Westpac BlueChip 20 Product Review”


  1. Ben Begg Says:
    September 2nd, 2009 at 12:15 pm

    I initially invested with this product when it was launched by Merrill Lynch and what attracted me was that I could see what stocks I owned. I could also see the transparency of the dividends received and if I bought into the fund say in October I was not buying accrued income that would be paid out to me at year end like a managed fund. I also believe that the ASX 20 has top performing stocks which pay good dividends. The management fee is low, and sure it is not as low as say the Vanguard Index Fund but the brokerage on entry and exit makes up for that, with the BlueChip20 being 0.05% whereas Vanguard is 0.3%. Overall a well run and well managed fund. I now have my Margin Loan with BT and I love how I can log on nightly and see the status of my investments.

  2. Ken Tse Says:
    October 12th, 2009 at 11:36 pm

    I invested in a version of BlueChip20 from 2020Direct. From what I can tell they are same thing with the administration also done by Blackrock, but I am only paying a 0.385% dealer group services fee (compared to 0.825% mentioned in the fees section above), and I was able to set up the account without margin lending which doesn’t seem possible with Westpac. Overall I have been very happy with the operation of the account. Takes the work out of selecting and buying shares.

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