Investing in and hedging the S&P/ASX Emerging Companies Index?

[Ahmisk]

Hi, could anyone tell me what's the best way to invest in an australian emerging companies index and then completely hedge the market risk of the index? Eg would there be futures I could use for this? Thank you!

 

[Trembling Hand]

If you can find an instrument/derivative to " completely hedge the market risk of the index" the trade would be useless because as 1 instrument gains $1 the other would lose a $1 leaving you stuck at the initial purchase price + an extra set of transaction cost, if not many extra as the derivative expires and you need to roll continually into the next front contract.

The only use of "completely hedge the market risk of the index" would be to add a market timing model onto a long term hold to avoid needing to sell and triggering CGT events. But a lot easier said than implemented.

 

[Ahmisk]

If you can find an instrument/derivative to " completely hedge the market risk of the index" the trade would be useless because as 1 instrument gains $1 the other would lose a $1 leaving you stuck at the initial purchase price + an extra set of transaction cost, if not many extra as the derivative expires and you need to roll continually into the next front contract.

The only use of "completely hedge the market risk of the index" would be to add a market timing model onto a long term hold to avoid needing to sell and triggering CGT events. But a lot easier said than implemented.

Hi, thanks for your reply. I think I should rephrase my question. I recognise that one would offset the other and I'm ok with that. I'd just like to know if there are any instruments/ derivatives to hedge my exposure to the index. I hope someone can help. Thanks!

 

[skyQuake]

To clarify,

Are you looking for Emerging companies on the ASX, and wish to rid yourself of general market risk?

ie Betting that the emerging companies will outperform the market itself

 

[Richard Dale]

Since the S&P/ASX Emerging Companies Index represents companies that are basically beyond the 350th stock and the 600th stock, you have limited liquidity and negligible likelihood of any derivatives being created to allow you to hedge these securities. Shortly opportunities for individual stocks are are limited/non-existent.

More information in the Methodology document accessible via here:
http://au.spindices.com/indices/equity/sp-asx-emerging-companies-index

Downloadable here:
http://au.spindices.com/documents/methodologies/methodology-sp-asx-ec.pdf?force_download=true