UBS has launched a new investment product in Australia with a loan facility that allows investors to borrow money to purchase exchanged-traded products (ETFs), shares and listed managed funds.

Investors in any of the two tranches of UBS’s Investment Builders will be able to purchase these products by paying a portion of the underlying security price themselves, while UBS provides a limited recourse loan for the balance of the purchase price.

According to the bank, by purchasing the underlying shares through the product, investors and self-managed super funds (SMSFs) become the beneficial owner and receive exposure to price performance, dividends and potential franking credits.

"UBS Investment Builders innovatively combines a limited recourse loan with a share or ETF that can be seamlessly purchased on the ASX in a similar way to buying shares outright and often at reduced brokerage costs,"said Travis Miller, UBS head of derivatives sales. "UBS Investment Builders also offer individuals and SMSF's the benefits of potential interest deductions and franking credits, (...) along with the benefits of pricing transparency and ease of trading on-market, the added certainty of the walk-away feature that limits losses to the purchase."

The new product offers two options: Share Builders and Dividend Builders. Share Builders, which uses dividend income to pay the loan, is a structured investment offering geared exposure to State Street’s SPDR MSCI Australia Select High Dividend Yield Fund; while Dividend Builders, which pays an income stream from dividends, is also a structured product providing geared exposure to 50 ASX-listed company stocks.

The product is available to superannuation funds and can have specific benefits for SMSF trustees, according to UBS.

There are no limitations on the amount that investors can borrow other than the $500 minimum investment amount that all ASX products are subject to.

The launch comes after the Financial System Inquiry released an interim report in July outlining a number of concerns about borrowing by superannuation funds.

“The general lack of leverage in the superannuation system is a major strength of the financial system,” it said. “Although direct leverage in superannuation is small, the current ability to borrow directly may, over time, erode this strength and create new risks to the financial system.”

The report also said that asset prices are prone to volatility, which can be exacerbated by the natural momentum of markets and/or the intervention of governments. “This can result in asset values deviating from fundamental values and instability, particularly with the use of leverage,” it said.

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