Weapons of Mass Destruction

Hi Scott,

I am just about to finish my uni degree and have landed myself a full-time job at a small accounting firm. Before I plough into the life of debits and credits, I want to make sure I join the best super fund in the market. I have looked at various funds that use indexing and have low fees. However, I have read that they use ‘derivatives’ in their portfolio. Have you looked into the portfolio breakdown of these funds? Derivatives have resulted in a lot of mess in the past for a lot of people.

Skeptical Sam

Hey Sam,

You’re asking all the right questions.

Stockspot found that index super funds beat 90% of all other super funds — both retail and industry — over five years. However, not all index funds are created equal.

For example: REST super use Macquarie Bank’s True Index fund, which charges no fees.

What’s the catch?

Well, Macquarie True Index uses ‘derivatives’, which essentially means that it isn’t required to invest in the actual shares that make up the index, only to guarantee to provide the returns the index makes.

But what happens if Macquarie doesn’t come good on their promise?

Well, that is the risk you’re taking.

REST say they’ve done their due diligence and are comfortable with the risk.

I agree with them. However, personally, I want my index funds to actually own the underlying shares.

Scott