Forum Topics Geared ETFs
DrPete
Added 2 months ago

Thought I'd share a small insight into geared ETFs that some may not be aware of. And I'd value any feedback about pros and cons of both Betashares Direct and Vanguard Personal Investor.

I'm exploring options for a young adult (daughter's boyfriend) to start their investing journey. Looking for something simple that automates investing as much as possible, but that will also be suitable for, say, a 10-year investment journey.

I've used Raiz for my daughters since they were young kids. Was a good start to their journey for very small investments, and has a neat "round-up" feature that auto-invests a small amount every time they bought something. But its fees are > 0.50%, and investment options are limited. So I think there are better options once someone starts working full-time.

But for my audience, a broking account with direct investments feels too complicated. There are brokerage fees. No auto-invest. And tax reporting starts to get complicated.

I'm looking at Betashares Direct. Looks user-friendly. No brokerage on buy or sell. Can invest in any ETF, not just Betashares ETFs (unlike Vanguard Personal Investor, which only lets you invest in Vanguard ETFs; eg you can invest in Vanguard ETFs through Betashares Direct, but you can't invest in Betashares ETFs via Vanguard). Can invest in top 300 companies. Can auto-invest and fractionally invest. Small downside is it's a custodial model whereas I prefer CHESS. But they allow all investments to be moved out to a personal CHESS brokerage account if you ever want to (not sure if CGT would be triggered by such a move?).

And I'm exploring pros and cons of Betashares geared diversified ETFs such as GHHF Diversified All Growth Geared. One bit of somewhat misleading marketing I've discovered is the management fees. It is advertised as 0.35% management fee. But that fee is on the total geared-up value. So the actual fee on your investment can be up to 0.59%, depending on the amount of gearing used. Eg, if you invest $100, they gear it up to $150 (the gearing ratio is 30-40%), they charge the 0.35% fee on the $150, so effective fee is 0.35% x $150 / $100 = 0.53%.

That's perhaps an acceptable fee for managing the asset allocation, gearing, avoiding margin calls, etc. But it still felt like a bit of a "gotcha" when I only learned in the PDS that the actual fee was higher than the headline fee on their website.

Anyway, I'd value any experiences people have had with geared ETFs, and with either Betashares Direct or Vanguard Personal Investor.

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DrPete
Added 2 months ago

To answer one of my own questions, I've since read that Betashares says CGT is NOT triggered when moving assets between a CHESS sponsored broker and a custodian such as Betashares so long as the beneficial owner remains unchanged.

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lowway
Added 2 months ago

Sorry @DrPete, I've never used the geared ETFs of any provider, although if I did (that's a big IF) it would most likely be either Vanguard or Betashares as the market leaders.

Gotta say, it looks like the fees are going to be your biggest issue, especially as they will definitely chew into long-term compounding. The concept of no brokerage is cool, but I would use some of the other Vanguard internal ETFs that should also be a no brokerage type account with their Vanguard Auto Invest product and pick my own index based low fee ETFs.

Auto Invest: Regular Investing Made Easy | Vanguard Australia Personal Investor

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Dominator
Added 2 months ago

Didn't realise Betashares had released more mainstream based geared ETFs. Look interesting. If they say what they do and you expect the index to grow over time seems like a good way to increase returns. Especially for those starting out. Just need to stomach the extra volatility and invest over a long enough period to ensure profit over the non-geared product.

I guess you would need to look at the fees based on expected return compared to the non-geared product. For example, if you are expecting 8% return from A200 then you should expect 10.4-11.2% minus extra fees of around 0.5% and interest expenses. It's hard to work out what the interest cost actually is. 40% of the fund with 5% interest rate would reduce returns by 2%. Making it marginally better or have I got that wrong?

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Dangles
Added a month ago

Hi @DrPete

I'm currently in the process of investing in GHHF and would preferably like to be doing so through Betashares Direct, but unfortunately they don't offer a joint account option yet, so I'll be unable to use them as the broker. You've highlighted the other obvious concern which is that they don't offer CHESS ownership, however I struggle to see Betashares blowing up personally, so am not concerned about this issue.

The biggest positive with GHHF and G200 is that they use moderate gearing and over a full market-cycle can be expected to deliver above market returns.

The biggest negative is that you need to be prepared to stomach some wild volatility to receive these returns. Hopefully your daughter's partner has the necessary conviction, but I'm sure I don't need to tell you that a surprising number of casual investors are extremely reactive to seeing their portfolio drop by 10%+ in under a week. I would personally have a far greater conviction and ability to hold through a proper downswing now in my 30's vs when I was in my early 20's and still learning about markets. DHHF is potentially more appropriate in this regard?

Dominator - Your calculations are correct. On a $100k portfolio with your figures, return would be 7.96% for A200 vs 8.7% for G200. Doesn't sound like much, but 0.74% compounded makes quite a difference. Further, the benefits of GHHF & G200 are best seen at lower interest rates, so as you reduce the borrowing rate the difference between the two grows.

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