Tuesday, November 04, 2008

Managing switching delays with Watson Wyatt

Since the company decided to switch from Fidelity to Watson Wyatt the delays in completing switches within your individual provident fund accounts has increased.

In discussions I have had with Nick Foxton, he has insisted there are no significant differences between Fidelity and Watson Wyatt in terms of time delays but based upon my personal experience (and emails from others), that does not seem to be the case.

The bottom line is it appears the company has elected to change administrators NOT because they offer a better service (as Foxton suggests) but more likely because they were a much cheaper option than the services offered by Fidelity.

We are now stuck with this provider and I have been asked by many how to alleviate delays in switches. Here are a few pointers:

1) switches initiated prior to 1000 DXB time are actioned that day. Beyond 1000 DXB time and they are actioned the following day. Get switch changes in early to avoid an additional day of delays.

2) there is a further delay if you are switching from one family to another family (eg. Fidelity to Blackrock/MLIM vs Fidelity to Fidelity). If time is of the essence think about switching between the same family of funds if possible.

3) use of hedges to mitigate time delays. These can be useful to essentially "freeze" your total portfolio while a switch is in the process of taking place (but are only available outside the provident fund). This is the reason why I do not have a C account with Emirates/Watson Wyatt but instead use my own brokerage account.

For example, when I made my switches from Euro/Aussie dollar to USD I used an equivalent amount of leveraged long USD positions in my brokerage account to cover the period of "transit time" for the Euro and Aussie dollars to be converted into USD in the provident fund account. I used the Rydex Strengthening Dollar x 2 Strategy (leveraged fund moves twice the movement in the USD so I only needed to commit half as much to this as was in "transit" in the provident fund account) to hedge the same amount in dollars I held in transit in the provident fund Euro and Aussie accounts. Once the switch was complete I could either take the hedge down or keep it (I kept it as the USD has continued to outperform).

Another useful currency hedge is the Market Vectors Double Long Euro ETN (symbol URR) or Market Vectors Double Short Euro ETN (symbol DRR).

Fortunately most of the switches I do in the provident fund tend to be of a more intermediate to long term nature so a few days of "transit time" should not have a significant effect on overall performance. However it is annoying and unnecessary for these delays so please feel free to contact Foxton to express your displeasure:


Note he is based in London UK but will get back to you in a day or two. Maybe if enough of us complain something will be done about it.

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