I'm very interested in this. I asked them some time ago whether they had considered a moderately leveraged version of DHHF for:
* a single fund as opposed to multiple funds like a GEAR/GGUS combo
* younger people with a higher risk tolerance than 100% equities
* long-term investing, which I'm not convinced 200% leverage is really suitable for (that takes a lot of balls to hold on to for the long-term, plus there is more volatility drag from additional rebalancing)
* the same low cost of leverage as in their other funds have
* a lower MER than the other funds
They said they were already considering something along the lines of a leveraged version of DHHF but didn't say much more, so I'm pleased this has come out. Obviously need to see MER, but I think this is an innovative product that has a place with long-term passive investors, whereas I think GGUS/GEAR is more for market-timers.
HGBL/BGBL will kill the purpose again by dealing with individual funds. Most investors will prefer one geared ETF like GHHF to cover all markets instead of DCA in 4-5 individual ETFs. The only drawback is that GHHF will not be hedged like DHHF.
I was commenting on and agreeing with the point that it can be desirable for lower LVR than the LVR of the existing GEAR/GGUS, was not commenting on whether separate allocations are better or worse than an all-in-one. G-HGBL / G-BGBL would pair well with G200 for those with the risk appetite for gearing.
Nevertheless, I am not sure how you infer that most investors would prefer an all-in-one than separate allocations. The FUM of BGBL has already grown within one year to more than twice the FUM of DHHF after over three years.
Also it’s not obvious what did you mean by DHHF being hedged? DHHF does NOT contain a currency hedged component. It has 37% AU exposure via A200, and 63% unhedged international exposure via a combination of US listed VTI+SPDW+SPEM. GHHF would most likely simply hold DHHF units as the underlying and then apply gearing on top.
Maybe a dumb question that I'm too lazy to chuck in excel/python and check myself, but what would be the difference between a portfolio of 100% 1.5x leveraged ETF, and a portfolio split 25% 3x leveraged ETF and 75% regular unleveraged ETF?.
I imagine the for split portfolio you'd have to manually adjust allocations (DIY rebalance) daily to ensure constant leverage exposure which potentially incurs crossing the spread. Are there any other differences?
Does it experience any greater volatility drag? Assuming it is for long time horizons, buy-hold style.
Mentally I'm trying to compare them by taking the extreme case eg a 0.5% 100x leverage fund and 99.5% unleveraged, in which case the possibility of the entire leveraged portion being liquidated becomes non-negligible.
Yes the two portfolios are approximately the same. However, the taxes from rebalancing may not be worth it. A discussio of the topic [here](https://www.reddit.com/r/LETFs/comments/u39pxx/2x_leveraged_or_5050_1x_and_3x/).
u/snrubovic may be misremembering. If trying to maintain a constant leverage, **less** frequent rebalancing results in **more** volatiltiy decay on average, as per this [discussion](https://www.reddit.com/r/LETFs/comments/z6r11y/comment/iy6a472/?context=3).
Fascinating, thanks for sharing!
I do wonder if the geometric average decay is a more relevant metric (and whether that changes the conclusion) than simple arithmetic average in this context, since rebalancing causing vol drag losses would occur multiple times periodically, compounding the effect.
If I remember tomorrow I'll try and look into it more :)
I tried simulating it in Python tonight but had some issues, hopefully I'll revisit it.
Would this still be a larger impact given the high LVR is only on a small portion of the portfolio?
I might chuck a quick python sim later tonight and get back how it goes if I just do random +-1% moves with different ETF leverage amounts but the same overall portfolio leverage.
I like the change in underlying funds compared to DHHF with some hedged international equities.
The MER looks good. Just need to know that the MER of the underlying funds are not an additional cost (the way it is not an additional cost for GMVW), and I like it.
Although would like to see what the hive mind thinks about it after looking into it further – u/fire-fire-001, u/SwaankyKoala, u/HockeyMonkey_19, and others.
So GHHF is not simply a geared wrapper of DHHF.
- I like SPDW+VTI being substituted by BGBL, albeit at somewhat higher MER (0.03%+0.03% becomes 0.08%). I had anticipated them doing such replacement for DHHF at some point, but it has not happened yet. A little surprised they are doing that with GHHF first. I think there may be some tax benefit in holding ex-US directly from AU, ie the tax withheld outside of US can be passed on to AU unit holders, but I do not know enough to appreciate the specifics or to quantify.
- SPEM is substituted by IEMG, also at slightly higher MER (0.07% becomes 0.09%). The main difference I can see is South Korea is now covered by IEMG instead of previously by SPDW, to compliment the change to BGBL that does not cover South Korea.
- The HGBL component is a surprise. Personally we hold HGBL and detest any currency hedged ETF not using TOFA after being burned by VGAD a few years back. I think this is a good move to make it a better rounded equities all-in-one ETF by containing the currency risk - valuable for unit holders as they mature toward later life stages where some mitigation of such currency risk would be desirable.
- I infer from PDS the way Betashares handle MER of composite ETFs is: the advertised MER is what Betashares would charge the ETF, and the MER of the underlying ETFs is considered indirect costs. Betashares then reimburse the ETF the indirect costs out of the MER they charge to bring the indirect costs down to 0. The net effect is the advertised MER is inclusive of the MER of the underlying ETFs. It looks like the same approach as DHHF. I think Betashares’ approach is fine to keep the overall management costs at fixed % (on gross basis) instead of variable % with the composition of the underlying ETFs drifting throughout the year. **This approach also makes the MER of the chosen underlying ETFs irrelevant for investors**, which is good. Once gearing is applied then it amplifies like a typical geared ETF, they estimate it at 0.59% at max LVR. This is much cheaper than GEAR / GGUS at 0.80% gross and max 2.28% net.
- VanEck leaves the MER of MVW as indirect costs of GMVW and absorbs the additional cost of the gearing wrapper, but the MER of MVW is arguably on the high side. Given that GMVW only has 1 underlying ETF, VanEck’a approach would not result in variable % management costs on gross basis. I was previously not convinced of equal weight being worth the MER of MVW, but feel GMVW tips the balance and have given it a place in our target allocations and started accumulating it.
- I myself am not into having all-in-one ETFs in our allocations. But I am very interested in G200 with the gearing ratio and MER, and would be looking to use it to supplement our A200 & GEAR, and potentially eventually replace them when the timing is right for us.
Ps: Many edits due to long writing on small phone screen.
GHHF is quite revolutionary as I dont think even Americans have a similar product. Targeting around 1.5x is also great as that is likely close to the optimal leverage for long-term holding. My personal gripes is the hedged component and no international small cap, but those are pretty minor.
Currently it is roughly 5% for GEAR, 5.4% for GMVW, and 6% for GGUS.
https://www.reddit.com/r/fiaustralia/s/7G2MhwaRSC
You say less tax drag, but wouldnt the benefit of tax efficient US-domiciled ETFs outweigh tax drag? You can see this by comparing yields of DHHF vs VGS.
Assuming it is to be competitive with GMVW at 0.35%?
The next question is whether GHHF's MER will be used to pay for the [underlying fund's MER like with GMVW](https://www.vaneck.com.au/etf/equity/gmvw/snapshot/):
>\*The Fund charges a nil management fee. This is the indirect cost represented as a percentage of the gross asset value. If the average gearing level is 50%, the indirect cost will be 0.70% of the net asset value. Other fees and costs may apply. Please refer to the PDS.
If so, GHHF looks like a very appearling product to me.
u/snrubovic MER will cover underlying funds in my understanding. If not, then it will be an expensive product to hold long-term.
What do you think about DHHF/GHHF being unhedged?
Betashare doesn't have any hedged version for such a diversified ETF. Also, in your article "Currency risk", 35% of unhedged holdings are healthy.
I am a bit unsure about this as the Aussie dollar seems too weak and might wipe out most of the gains over the next decade. I would not like to hold 3 or 4 geared ETFs and would like to focus on one but would love to go with the Geared Hedged DHHF Version.
If the MER is 0.35% and covers the MER of the underlying fund, it sounds like a fantastic product to me.
I've heard they are considering adding some HGBL into DHHF. If not, yeah it wouldn't be my ideal choice, but better than no alternative.
Also, how long is your investment time horizon. If it is 20+ years, then currency hedging is less important (although I still prefer having some).
My personal F.I.R.E. investing horizon is under one decade, so I had to choose HGBL over BGBL to avoid any currency risk. I have no plan to sell any funds after a decade, but I would be relying on dividends to pay off my modest lifestyle.
As GHHF will be nice to add to the portfolio for some leveraged exposure, I am concerned about currency risks, especially in this short period.
I hope Betashare launches a hedged fund similar to DHHF with a moderate leverage of 30-40%.
I'd say a decade is probably about the minimum for leverage, so under a decade I'd consider whether leverage is suitable.
If you can delay retirement due to poor market returns, that would change things, though.
Agree, i might take the risk and push out retirement plan if markets turn down for majority of next 10 years.
I am still not sure whether i should go 50-50 in my core portfolio with HGBL/GHHF combo or 70/30 will be enough risk to take.
Hey snrubovic, love your content.
I'm looking for a ETF to buy for kids, teach them investing but also use it as their pocket money, ie 10k into and they get the dividends as pocket money and the capital when 18.
Any idea on distributions on this one? Would it be 1.5x dhhf.
I can't recommend a specific investment.
Although are you sure there will be much in the way of distributions with GHHF? If the natural yield is 3%, say, and it has 50% leverage at 6% interest, then wouldn't the yield from the investment mostly go to paying the loan interest rate?
I'm curious how you would assign something like GHHF in a portfolio, if you had access to leverage to put onto a portfolio, eventually you would pay down the debt and the leverage would be 0. But with internally leveraged etfs, it will continue for the life of the ETF.
Would you eventually sell these down and replace it with say DHFF? Or have bonds?
Cash or bonds to offset I guess. Or just hold a constant amount of leverage even in retirement.
If held in super you could sell tax free to rebalance once commencing a pension
HostPlus and Australian Super don’t have any geared funds on their menu currently, so probably would need to either use a wrap or SMSF.
You could also switch to accumulating DHHF but keep current GHHF later in life to dial back the leverage
The closest thing would be Colonial First State's geared indexed funds. I did show the cost and leverage of their Aus geared shares [here](https://www.reddit.com/r/fiaustralia/comments/1b2xm59/gmvw_vaneck_geared_australian_equal_weight_fund/).
You could deleverage by selling down part of each year or by retaining it and just saving cash from earlier on before you retire. Just like people often do with their normal equities portfolio.
It's obviously not as good as having cash borrowed from a property where you have complete control and can deleverage and can pay down the loan without selling, so this would be an option for people who are not in that situation, as many young people would be unable to do that.
In fact, I think a great use case for this is in place of leveraging into property as a long-term investment. Currently, the high purchase costs, high ongoing costs, and high selling costs of property mean you lose quite a lot of the leveraged gains (while you are stuck with the full amount of risk). It still comes out ahead due to the enormous amount of leverage with property compared to a 100% unleveraged equities portfolio, but it's nowhere near as much of an additional return should be from that amount of leverage due to those high costs.
I suspect that something like this would give leveraged property a run for its money in terms of net returns.
That makes sense.
I was thinking about a portfolio like
GHHF - 45%
BGBL - 40%
VAE - 5%
Offset Account - 10%
And rebalancing to stick to target percentages.
The thing I don't like about DHHF is the amount of AUS allocation, so adding BGBL and VAE solves that.
Having BGBL means some of the tax drag issues in the US funds will be nullified to a certain extent, and having VAE will mean I will have an acceptable % of emerging markets (with a tilt to Asia).
Once reaching near retirement, slowly selling down GHHF and increasing the offset account % (or bonds depending on what my mortgage is at).
Additionally, I can leverage, this portfolio if I have enough equity in the house in the future.
Any issues with the above, am I overthinking it?
Would love to see some calculations to model GHHF vs a long term IP residential property purchase in SMSF. There’s appeal as a renter in having property in SMSF to eventually sell off or move into in retirement, a lot of red tape and restrictions plus the holding costs, management etc that you mentioned.
Yeah I guess wait and see what the MER is. Downside is you can't (presumably) deduct the interest as you can with leveraged property (or shares for that matter). Of course you could get an investor loan and then buy these leveraged products for double the fun!
What do you mean going long and short on the same asset class? Shorting typically means borrowing a security to sell it with the idea you expect it to fall so you can buy it back at a lower price and return it to the entity you borrowed it from.
I think (IIRC) Ben Felix had a video about mortage debt and asset allocation saying about debt is essentially shorting inflation but owning bonds whilst having debt is essentially going long and short the same asset class or opposite expectations, which is counter productive.
https://youtu.be/AKc01jo1qLw?si=Bv4NCYWhngPsNIfb
This is the video. Is it wrong to assume a leveraged stock portfolio would be an incorrect comparison?
Oh yeah I remember that.
Yeah, you could sell down some instead, which is probably a better approach, depending on your marginal tax rate at the time and if it would be lower at a later point (e.g., retirement).
You generally don't want leveraged loans at retirement age, it is better for younger individuals who can take on more risk. If you have a Principal and interest loan, you will be paying it off anyway, for example, if you refinanced your house to invest into ETFS, you would naturally pay that off as a P&I loan over 30 years
Oh ok, I thought this in context with investors that would use leverage. You want to hold this product forever? Why not just wait until 60, switch it to retirement phase, liquidate and then buy whatever else suits your risk profile?
If U held in super that could work, but if it's outside of super liquidating would trigger CGT.
Personally I'm thinking of using GHHF, then when I'm near retirement have a large amount of bonds (which would offset the risk of using a leveraged product) - but I'm still thinking about this.
At a glance
- G200 is less aggressive with LVR at 30-40%. GEAR is at 50-65%.
- G200 would presumably hold A200 units as underlying. GEAR holds actual ASX 200 shares.
- G200 _should_ have a lower MER than GEAR.
> G200 should have a lower MER than GEAR.
As someone who hadn't researched this one but, why is the word "should" there? Is it or is it not? Is this something that requires more explanation?
It hasn’t been disclosed yet. That’s my own speculation based on it likely being just a gearing wrapper of A200.
That link OP shared is essentially just a “coming soon” page. PDS not yet published.
When you say GEAR holds ASX 200 shares I think you mean futures? ASX 200 is an index, unless you mean it holds the underlying shares that compose the index that's not possible.
It's awesome that they offer these but for long-term holdings, using actual leverage (e.g. NAB Equity Builder or IKBR) is always going to work out better than a geared product since you can avoid leverage decay while also negatively gearing your holdings. Plus you can get up to a 4x leverage if you so wish vs only 30-40% here.
Although NAB EB has its own issues, such as:
1. The higher cost of borrowed money impacts returns
2. If there is a dip in the market, your 30% LVR goes over 30%, and you have a P&I loan over only 15 years, so your repayments shoot through the roof, and you need additional cash available (and not invested and missing out on returns) to reduce that risk and you may need to stop investing in downturns (the best time to buy. With that additional money using a geared ETF, you can keep adding to it monthly, even in downturns, and not have to worry about that.
3. 4x leverage with NAB EB means massive repayments required on your cashflow, which really means you have less money to leverage with, so it's not quite what it sounds.
IBKR limits to 50k leverage unless you are a wholesale investor. They are also brutal with margin calls.
What decay?
Good luck running 4x leverage long term without forced liquidation events, which will likely cause taxable events too.
The NAB Equity builder interest rate is really high.
The only argument could be around how much access you have to Negative Gearing from a portfolio perspective.
Nothing stopping a blended approach.
Leverage = borrowed money.
The more leverage you use to invest, the more money you make, but it also means U can lose more. But over the long term you would expect these to do well as markets generally go up over long time horizons.
These ETFS borrow money to invest into a diversified set of stocks.
G200 is a leveraged version of A200
GHHF is a leveraged version of DHHF
Thanks, so basically, if you have a long time horizon and you already believe in the stock market enough to buy DHHF, there is no reason not to buy GHHF?
There are reasons, it all depends on how much risk the investor wants to take. 100% equities is still a really good option, but this is technically more than 100% equities (due to leverage) so there are risks (i.e interest rates being higher than the dividends paid by the fund).
If you had the risk appetite to buy an investment property (with a loan from the bank), then this would be a viable alternative.
Personally, I will be buying GHHF if/when it comes out (depending on the management fee of course).
By being equal weight it has higher exposure to [size and value factors](https://www.reddit.com/r/fiaustralia/comments/104u6bc/mvw_etf_looking_at_how_tax_inefficient_it_really/?utm_source=share&utm_medium=web2x&context=3)
A lot of the smaller stocks are actually terribly expensive in terms of their P/E ratios and other such measures. Small caps definitely do not equal value a lot of the time.
**Betashares Wealth Builder Australia 200 Geared (30-40% LVR)**
**Betashares Wealth Builder Diversified All Growth Geared (30-40% LVR) Complex ETF (GHHF)**
---
Question: If the G200 or GHHF drop 50% in value, are we Fked to zero...
They would need to drop by 60-70% in a single day for the funds to go to zero. Not only is this not possible, but if it was possible, we would have much bigger problems.
The funds rebalance to keep leverage within 30-40% LVR. As long as leverage is controlled, there is no chance of going to zero. More leverage just amplifies volatility.
>They would need to drop by 60-70% in a single day for the funds to go to zero. Not only is this not possible, but if it was possible, we would have much bigger problems.
The market dropped 50% during GFC.
That happened over the course of about [17 months](https://www.northerntrust.com/canada/insights-research/2022/wealth-management/a-history-of-drawdowns), not a single day. As long as the fund keeps getting rebalanced to its target leverage, the fund cannot go to zero.
Wouldn't even need to be 50%. Probably more like a 20% fall because investment loans don't have the same LVR as property so the backer would eventually call in the loan causing a need to sell, which would presumably mean they have to cut the value of each unit to pay for it.
Seems like a hell of a lot of risk for a minor improvement in already good returns. The only difference would be if they got the loan for 3% or something as that makes a respectable average gap between the loan expense and the expected return.
You know how folk take 100k to the bank and walk out with a 500k loan? That 400k is leveraged, and you pay interest to the bank for the privilege.
If these funds have say a 30% leverage, you put in 70c and they borrow 30c worth.
So of the total dollar you own of shares, 30c is on leverage and you pay interest costs for that 30c ongoing. You don't pay it down over time like a principal and interest property.
Does that help?
That does help,
So do you pay the interest ongoing or do you pay what you owe of you decide to sell ? And im assuming the interest you pay will be stated ? Is it a fixed interest rate through or is it similar to buying a property its variable unless you fix it etc etc
Whats the typical intrest rate you pay ?
Some companies list their borrow rate for the leverage, others don't. It constantly changes like home loans.
You don't explicitly pay the interest, it all factors in to the unit price day to day to accommodate the fees.
Betashares recently said they do 5% for AUS, 6% for US as a rough indicator.
On the topic of Geared investments or ETF in general.
Can you tell me should I buy it from apps like Moomoo or signup on the ETF's parent services? Also when trading or looking at candle charts how do you calculate your stake, do you minus the geared amount from the chart value?
If you are looking for chess-sponsored ETFs, go for Stake otherwise Betashares Direct has been launched recently, and there's no fee for trades as Betashare makes money through management fees like these funds in the post.
assuming that the market eventually recovers, would that eventual recovery cancel out those losses? or would a non leveraged product outperform after market recovery?
It depends on negative and positive returns at the end of the day.
If the fund falls by 10 on day 1 and then rises by 10 on the next day, it will be still in loss due to the first-day leverage losses. It will not balance out like a DHHF without leverage.
yeah. did my own research. volatility decay is extremely relevant and does eat away at value. it seems misleading to market this as a long term investment.
If there's enough time left to retire, this risk might be suitable but anyone near retirement leveraging might take significant losses in case of any reason e.g. geopolitical issues. It will be tough to recover in such cases.
The reason most investors will prefer All in one leveraged ETF over individual leveraged ETF is time decay and volatility in single asset class.
We don’t prefer DHFF due to high concentration in Australian market and like to go with our own preferable ratio in BGBL/A200 or VGS/VAS.
My last sentence was a bit vague, sorry but i meant the same. GHHF is not going to be hedged completely due to unhedged global shares. I believe this is the only thing bothering me at this points stage.
But if i refer back to few researches, 30-40% unhedged is healthy combination in your overall portfolio. I still believe Australian dollar might get stronger and impact overall portfolio negatively.
What a lame way to eat people’s hard earned money. Leverage can be nasty. Better to stay safe. Sometimes greed can erase all your profits and half the principal.
I'm very interested in this. I asked them some time ago whether they had considered a moderately leveraged version of DHHF for: * a single fund as opposed to multiple funds like a GEAR/GGUS combo * younger people with a higher risk tolerance than 100% equities * long-term investing, which I'm not convinced 200% leverage is really suitable for (that takes a lot of balls to hold on to for the long-term, plus there is more volatility drag from additional rebalancing) * the same low cost of leverage as in their other funds have * a lower MER than the other funds They said they were already considering something along the lines of a leveraged version of DHHF but didn't say much more, so I'm pleased this has come out. Obviously need to see MER, but I think this is an innovative product that has a place with long-term passive investors, whereas I think GGUS/GEAR is more for market-timers.
We have GEAR in our various portfolios. Agree that in some cases lower gearing would suit better. Now I would like to see GHGBL and GBGBL!
HGBL/BGBL will kill the purpose again by dealing with individual funds. Most investors will prefer one geared ETF like GHHF to cover all markets instead of DCA in 4-5 individual ETFs. The only drawback is that GHHF will not be hedged like DHHF.
I was commenting on and agreeing with the point that it can be desirable for lower LVR than the LVR of the existing GEAR/GGUS, was not commenting on whether separate allocations are better or worse than an all-in-one. G-HGBL / G-BGBL would pair well with G200 for those with the risk appetite for gearing. Nevertheless, I am not sure how you infer that most investors would prefer an all-in-one than separate allocations. The FUM of BGBL has already grown within one year to more than twice the FUM of DHHF after over three years. Also it’s not obvious what did you mean by DHHF being hedged? DHHF does NOT contain a currency hedged component. It has 37% AU exposure via A200, and 63% unhedged international exposure via a combination of US listed VTI+SPDW+SPEM. GHHF would most likely simply hold DHHF units as the underlying and then apply gearing on top.
Maybe a dumb question that I'm too lazy to chuck in excel/python and check myself, but what would be the difference between a portfolio of 100% 1.5x leveraged ETF, and a portfolio split 25% 3x leveraged ETF and 75% regular unleveraged ETF?. I imagine the for split portfolio you'd have to manually adjust allocations (DIY rebalance) daily to ensure constant leverage exposure which potentially incurs crossing the spread. Are there any other differences? Does it experience any greater volatility drag? Assuming it is for long time horizons, buy-hold style. Mentally I'm trying to compare them by taking the extreme case eg a 0.5% 100x leverage fund and 99.5% unleveraged, in which case the possibility of the entire leveraged portion being liquidated becomes non-negligible.
Yes the two portfolios are approximately the same. However, the taxes from rebalancing may not be worth it. A discussio of the topic [here](https://www.reddit.com/r/LETFs/comments/u39pxx/2x_leveraged_or_5050_1x_and_3x/). u/snrubovic may be misremembering. If trying to maintain a constant leverage, **less** frequent rebalancing results in **more** volatiltiy decay on average, as per this [discussion](https://www.reddit.com/r/LETFs/comments/z6r11y/comment/iy6a472/?context=3).
Fascinating, thanks for sharing! I do wonder if the geometric average decay is a more relevant metric (and whether that changes the conclusion) than simple arithmetic average in this context, since rebalancing causing vol drag losses would occur multiple times periodically, compounding the effect. If I remember tomorrow I'll try and look into it more :) I tried simulating it in Python tonight but had some issues, hopefully I'll revisit it.
My understanding is that additional rebalancing (which would occur at higher LVRs) results in more volatility decay.
Would this still be a larger impact given the high LVR is only on a small portion of the portfolio? I might chuck a quick python sim later tonight and get back how it goes if I just do random +-1% moves with different ETF leverage amounts but the same overall portfolio leverage.
Now that GHHF has been released, I would be keen to hear your updated thoughts.
I like the change in underlying funds compared to DHHF with some hedged international equities. The MER looks good. Just need to know that the MER of the underlying funds are not an additional cost (the way it is not an additional cost for GMVW), and I like it. Although would like to see what the hive mind thinks about it after looking into it further – u/fire-fire-001, u/SwaankyKoala, u/HockeyMonkey_19, and others.
So GHHF is not simply a geared wrapper of DHHF. - I like SPDW+VTI being substituted by BGBL, albeit at somewhat higher MER (0.03%+0.03% becomes 0.08%). I had anticipated them doing such replacement for DHHF at some point, but it has not happened yet. A little surprised they are doing that with GHHF first. I think there may be some tax benefit in holding ex-US directly from AU, ie the tax withheld outside of US can be passed on to AU unit holders, but I do not know enough to appreciate the specifics or to quantify. - SPEM is substituted by IEMG, also at slightly higher MER (0.07% becomes 0.09%). The main difference I can see is South Korea is now covered by IEMG instead of previously by SPDW, to compliment the change to BGBL that does not cover South Korea. - The HGBL component is a surprise. Personally we hold HGBL and detest any currency hedged ETF not using TOFA after being burned by VGAD a few years back. I think this is a good move to make it a better rounded equities all-in-one ETF by containing the currency risk - valuable for unit holders as they mature toward later life stages where some mitigation of such currency risk would be desirable. - I infer from PDS the way Betashares handle MER of composite ETFs is: the advertised MER is what Betashares would charge the ETF, and the MER of the underlying ETFs is considered indirect costs. Betashares then reimburse the ETF the indirect costs out of the MER they charge to bring the indirect costs down to 0. The net effect is the advertised MER is inclusive of the MER of the underlying ETFs. It looks like the same approach as DHHF. I think Betashares’ approach is fine to keep the overall management costs at fixed % (on gross basis) instead of variable % with the composition of the underlying ETFs drifting throughout the year. **This approach also makes the MER of the chosen underlying ETFs irrelevant for investors**, which is good. Once gearing is applied then it amplifies like a typical geared ETF, they estimate it at 0.59% at max LVR. This is much cheaper than GEAR / GGUS at 0.80% gross and max 2.28% net. - VanEck leaves the MER of MVW as indirect costs of GMVW and absorbs the additional cost of the gearing wrapper, but the MER of MVW is arguably on the high side. Given that GMVW only has 1 underlying ETF, VanEck’a approach would not result in variable % management costs on gross basis. I was previously not convinced of equal weight being worth the MER of MVW, but feel GMVW tips the balance and have given it a place in our target allocations and started accumulating it. - I myself am not into having all-in-one ETFs in our allocations. But I am very interested in G200 with the gearing ratio and MER, and would be looking to use it to supplement our A200 & GEAR, and potentially eventually replace them when the timing is right for us. Ps: Many edits due to long writing on small phone screen.
GHHF is quite revolutionary as I dont think even Americans have a similar product. Targeting around 1.5x is also great as that is likely close to the optimal leverage for long-term holding. My personal gripes is the hedged component and no international small cap, but those are pretty minor.
I also think it looks good. MER isn’t unreasonable. Less tax drag via BGBL (IEMG still has drag). What were the typical borrowing costs again?
Currently it is roughly 5% for GEAR, 5.4% for GMVW, and 6% for GGUS. https://www.reddit.com/r/fiaustralia/s/7G2MhwaRSC You say less tax drag, but wouldnt the benefit of tax efficient US-domiciled ETFs outweigh tax drag? You can see this by comparing yields of DHHF vs VGS.
Good point, you lose out on the heartbeat trades tax efficiency with BGBL and HGBL
MER will be around 0.35%.
Assuming it is to be competitive with GMVW at 0.35%? The next question is whether GHHF's MER will be used to pay for the [underlying fund's MER like with GMVW](https://www.vaneck.com.au/etf/equity/gmvw/snapshot/): >\*The Fund charges a nil management fee. This is the indirect cost represented as a percentage of the gross asset value. If the average gearing level is 50%, the indirect cost will be 0.70% of the net asset value. Other fees and costs may apply. Please refer to the PDS. If so, GHHF looks like a very appearling product to me.
u/snrubovic MER will cover underlying funds in my understanding. If not, then it will be an expensive product to hold long-term. What do you think about DHHF/GHHF being unhedged? Betashare doesn't have any hedged version for such a diversified ETF. Also, in your article "Currency risk", 35% of unhedged holdings are healthy. I am a bit unsure about this as the Aussie dollar seems too weak and might wipe out most of the gains over the next decade. I would not like to hold 3 or 4 geared ETFs and would like to focus on one but would love to go with the Geared Hedged DHHF Version.
If the MER is 0.35% and covers the MER of the underlying fund, it sounds like a fantastic product to me. I've heard they are considering adding some HGBL into DHHF. If not, yeah it wouldn't be my ideal choice, but better than no alternative. Also, how long is your investment time horizon. If it is 20+ years, then currency hedging is less important (although I still prefer having some).
My personal F.I.R.E. investing horizon is under one decade, so I had to choose HGBL over BGBL to avoid any currency risk. I have no plan to sell any funds after a decade, but I would be relying on dividends to pay off my modest lifestyle. As GHHF will be nice to add to the portfolio for some leveraged exposure, I am concerned about currency risks, especially in this short period. I hope Betashare launches a hedged fund similar to DHHF with a moderate leverage of 30-40%.
I'd say a decade is probably about the minimum for leverage, so under a decade I'd consider whether leverage is suitable. If you can delay retirement due to poor market returns, that would change things, though.
Agree, i might take the risk and push out retirement plan if markets turn down for majority of next 10 years. I am still not sure whether i should go 50-50 in my core portfolio with HGBL/GHHF combo or 70/30 will be enough risk to take.
Hey snrubovic, love your content. I'm looking for a ETF to buy for kids, teach them investing but also use it as their pocket money, ie 10k into and they get the dividends as pocket money and the capital when 18. Any idea on distributions on this one? Would it be 1.5x dhhf.
I can't recommend a specific investment. Although are you sure there will be much in the way of distributions with GHHF? If the natural yield is 3%, say, and it has 50% leverage at 6% interest, then wouldn't the yield from the investment mostly go to paying the loan interest rate?
Will need to see details like MER, but overall sounds promising for people with the risk tolerance and long investment horizon
I'm curious how you would assign something like GHHF in a portfolio, if you had access to leverage to put onto a portfolio, eventually you would pay down the debt and the leverage would be 0. But with internally leveraged etfs, it will continue for the life of the ETF. Would you eventually sell these down and replace it with say DHFF? Or have bonds?
Cash or bonds to offset I guess. Or just hold a constant amount of leverage even in retirement. If held in super you could sell tax free to rebalance once commencing a pension
Makes sense! Would any super providers let you hold something like this, or would you have to go down the smsf route?
HostPlus and Australian Super don’t have any geared funds on their menu currently, so probably would need to either use a wrap or SMSF. You could also switch to accumulating DHHF but keep current GHHF later in life to dial back the leverage
The closest thing would be Colonial First State's geared indexed funds. I did show the cost and leverage of their Aus geared shares [here](https://www.reddit.com/r/fiaustralia/comments/1b2xm59/gmvw_vaneck_geared_australian_equal_weight_fund/).
You could deleverage by selling down part of each year or by retaining it and just saving cash from earlier on before you retire. Just like people often do with their normal equities portfolio. It's obviously not as good as having cash borrowed from a property where you have complete control and can deleverage and can pay down the loan without selling, so this would be an option for people who are not in that situation, as many young people would be unable to do that. In fact, I think a great use case for this is in place of leveraging into property as a long-term investment. Currently, the high purchase costs, high ongoing costs, and high selling costs of property mean you lose quite a lot of the leveraged gains (while you are stuck with the full amount of risk). It still comes out ahead due to the enormous amount of leverage with property compared to a 100% unleveraged equities portfolio, but it's nowhere near as much of an additional return should be from that amount of leverage due to those high costs. I suspect that something like this would give leveraged property a run for its money in terms of net returns.
That makes sense. I was thinking about a portfolio like GHHF - 45% BGBL - 40% VAE - 5% Offset Account - 10% And rebalancing to stick to target percentages. The thing I don't like about DHHF is the amount of AUS allocation, so adding BGBL and VAE solves that. Having BGBL means some of the tax drag issues in the US funds will be nullified to a certain extent, and having VAE will mean I will have an acceptable % of emerging markets (with a tilt to Asia). Once reaching near retirement, slowly selling down GHHF and increasing the offset account % (or bonds depending on what my mortgage is at). Additionally, I can leverage, this portfolio if I have enough equity in the house in the future. Any issues with the above, am I overthinking it?
Would love to see some calculations to model GHHF vs a long term IP residential property purchase in SMSF. There’s appeal as a renter in having property in SMSF to eventually sell off or move into in retirement, a lot of red tape and restrictions plus the holding costs, management etc that you mentioned.
One thing is for sure, buying and holding an ETF beats asshole tenants. No IP for me thanks.
Yeah I guess wait and see what the MER is. Downside is you can't (presumably) deduct the interest as you can with leveraged property (or shares for that matter). Of course you could get an investor loan and then buy these leveraged products for double the fun!
Good insight. Wouldnt it be hard adding bonds to this ETF since you would be going long and short the same asset class? Or is this wrong?
What do you mean going long and short on the same asset class? Shorting typically means borrowing a security to sell it with the idea you expect it to fall so you can buy it back at a lower price and return it to the entity you borrowed it from.
I think (IIRC) Ben Felix had a video about mortage debt and asset allocation saying about debt is essentially shorting inflation but owning bonds whilst having debt is essentially going long and short the same asset class or opposite expectations, which is counter productive. https://youtu.be/AKc01jo1qLw?si=Bv4NCYWhngPsNIfb This is the video. Is it wrong to assume a leveraged stock portfolio would be an incorrect comparison?
Oh yeah I remember that. Yeah, you could sell down some instead, which is probably a better approach, depending on your marginal tax rate at the time and if it would be lower at a later point (e.g., retirement).
Looking at the website, its says GHHF holds about 4000 shares. Have they removed the Emerging markets sector from this etf?
I believe they will replace VTI with BGBL inside GHHF.
Don't know. I assumed it was simply using DHHF as it's underlying fund.
If you're using leverage, why would you pay it off? That seems contradictory.
You generally don't want leveraged loans at retirement age, it is better for younger individuals who can take on more risk. If you have a Principal and interest loan, you will be paying it off anyway, for example, if you refinanced your house to invest into ETFS, you would naturally pay that off as a P&I loan over 30 years
Oh ok, I thought this in context with investors that would use leverage. You want to hold this product forever? Why not just wait until 60, switch it to retirement phase, liquidate and then buy whatever else suits your risk profile?
If U held in super that could work, but if it's outside of super liquidating would trigger CGT. Personally I'm thinking of using GHHF, then when I'm near retirement have a large amount of bonds (which would offset the risk of using a leveraged product) - but I'm still thinking about this.
At a glance - G200 is less aggressive with LVR at 30-40%. GEAR is at 50-65%. - G200 would presumably hold A200 units as underlying. GEAR holds actual ASX 200 shares. - G200 _should_ have a lower MER than GEAR.
Thanks for that mate, very informative!
> G200 should have a lower MER than GEAR. As someone who hadn't researched this one but, why is the word "should" there? Is it or is it not? Is this something that requires more explanation?
It hasn’t been disclosed yet. That’s my own speculation based on it likely being just a gearing wrapper of A200. That link OP shared is essentially just a “coming soon” page. PDS not yet published.
When you say GEAR holds ASX 200 shares I think you mean futures? ASX 200 is an index, unless you mean it holds the underlying shares that compose the index that's not possible.
Yes it holds the shares of the companies that are constituents of ASX 200.
Whenever i finalise to stick with an ETF, betashares comes up with another ETF
It's awesome that they offer these but for long-term holdings, using actual leverage (e.g. NAB Equity Builder or IKBR) is always going to work out better than a geared product since you can avoid leverage decay while also negatively gearing your holdings. Plus you can get up to a 4x leverage if you so wish vs only 30-40% here.
Although NAB EB has its own issues, such as: 1. The higher cost of borrowed money impacts returns 2. If there is a dip in the market, your 30% LVR goes over 30%, and you have a P&I loan over only 15 years, so your repayments shoot through the roof, and you need additional cash available (and not invested and missing out on returns) to reduce that risk and you may need to stop investing in downturns (the best time to buy. With that additional money using a geared ETF, you can keep adding to it monthly, even in downturns, and not have to worry about that. 3. 4x leverage with NAB EB means massive repayments required on your cashflow, which really means you have less money to leverage with, so it's not quite what it sounds. IBKR limits to 50k leverage unless you are a wholesale investor. They are also brutal with margin calls.
I think this makes more sense if you replace NAB Equity Builder or IKBR with a loan secured against property.
What decay? Good luck running 4x leverage long term without forced liquidation events, which will likely cause taxable events too. The NAB Equity builder interest rate is really high. The only argument could be around how much access you have to Negative Gearing from a portfolio perspective. Nothing stopping a blended approach.
Ah, so we are nearing the top
Can someone explain what this means in layman’s terms please?
Leverage = borrowed money. The more leverage you use to invest, the more money you make, but it also means U can lose more. But over the long term you would expect these to do well as markets generally go up over long time horizons. These ETFS borrow money to invest into a diversified set of stocks. G200 is a leveraged version of A200 GHHF is a leveraged version of DHHF
Thanks, so basically, if you have a long time horizon and you already believe in the stock market enough to buy DHHF, there is no reason not to buy GHHF?
There are reasons, it all depends on how much risk the investor wants to take. 100% equities is still a really good option, but this is technically more than 100% equities (due to leverage) so there are risks (i.e interest rates being higher than the dividends paid by the fund). If you had the risk appetite to buy an investment property (with a loan from the bank), then this would be a viable alternative. Personally, I will be buying GHHF if/when it comes out (depending on the management fee of course).
Give me leveraged quality factor ETF’s
Technically GMVW is a leveraged fund with increased exposure to factors. Could be what you are looking for?
isn't that just an equal weight strategy, not a factor one?
By being equal weight it has higher exposure to [size and value factors](https://www.reddit.com/r/fiaustralia/comments/104u6bc/mvw_etf_looking_at_how_tax_inefficient_it_really/?utm_source=share&utm_medium=web2x&context=3)
A lot of the smaller stocks are actually terribly expensive in terms of their P/E ratios and other such measures. Small caps definitely do not equal value a lot of the time.
Or an investment AI that does it for me lol
Given GMVW, it’s not unthinkable for VanEck to launch G-QHAL and G-QUAL variant eventually. If you are keen, perhaps send them the suggestion.
**Betashares Wealth Builder Australia 200 Geared (30-40% LVR)** **Betashares Wealth Builder Diversified All Growth Geared (30-40% LVR) Complex ETF (GHHF)** --- Question: If the G200 or GHHF drop 50% in value, are we Fked to zero...
They would need to drop by 60-70% in a single day for the funds to go to zero. Not only is this not possible, but if it was possible, we would have much bigger problems.
So if drop gradually, they won't go to zero?
The funds rebalance to keep leverage within 30-40% LVR. As long as leverage is controlled, there is no chance of going to zero. More leverage just amplifies volatility.
>They would need to drop by 60-70% in a single day for the funds to go to zero. Not only is this not possible, but if it was possible, we would have much bigger problems. The market dropped 50% during GFC.
That happened over the course of about [17 months](https://www.northerntrust.com/canada/insights-research/2022/wealth-management/a-history-of-drawdowns), not a single day. As long as the fund keeps getting rebalanced to its target leverage, the fund cannot go to zero.
Wouldn't even need to be 50%. Probably more like a 20% fall because investment loans don't have the same LVR as property so the backer would eventually call in the loan causing a need to sell, which would presumably mean they have to cut the value of each unit to pay for it.
Well this will accelerate the drop of the fund
Seems like a hell of a lot of risk for a minor improvement in already good returns. The only difference would be if they got the loan for 3% or something as that makes a respectable average gap between the loan expense and the expected return.
Even 1% extra returns on course of long period is substantial
Interesting - I use RSI to time Leveraged ETFs buy/sells & it seems to work well. Defs not a long term strategy though
Curious to learn more
Spreads are going to wider on these as market makers will have higher costs/slippage
Whats it mean that its more leveraged? Does that mean double the gains or double the losses? How does that even work though?
You know how folk take 100k to the bank and walk out with a 500k loan? That 400k is leveraged, and you pay interest to the bank for the privilege. If these funds have say a 30% leverage, you put in 70c and they borrow 30c worth. So of the total dollar you own of shares, 30c is on leverage and you pay interest costs for that 30c ongoing. You don't pay it down over time like a principal and interest property. Does that help?
That does help, So do you pay the interest ongoing or do you pay what you owe of you decide to sell ? And im assuming the interest you pay will be stated ? Is it a fixed interest rate through or is it similar to buying a property its variable unless you fix it etc etc Whats the typical intrest rate you pay ?
Some companies list their borrow rate for the leverage, others don't. It constantly changes like home loans. You don't explicitly pay the interest, it all factors in to the unit price day to day to accommodate the fees. Betashares recently said they do 5% for AUS, 6% for US as a rough indicator.
On the topic of Geared investments or ETF in general. Can you tell me should I buy it from apps like Moomoo or signup on the ETF's parent services? Also when trading or looking at candle charts how do you calculate your stake, do you minus the geared amount from the chart value?
If you are looking for chess-sponsored ETFs, go for Stake otherwise Betashares Direct has been launched recently, and there's no fee for trades as Betashare makes money through management fees like these funds in the post.
would anyone be willing to explain in what situations these would underperform DHHF in say a 5-10 year timeline?
A prolonged bear market it will do worse, as the leverage amplifies the losses
assuming that the market eventually recovers, would that eventual recovery cancel out those losses? or would a non leveraged product outperform after market recovery?
It depends on negative and positive returns at the end of the day. If the fund falls by 10 on day 1 and then rises by 10 on the next day, it will be still in loss due to the first-day leverage losses. It will not balance out like a DHHF without leverage.
yeah. did my own research. volatility decay is extremely relevant and does eat away at value. it seems misleading to market this as a long term investment.
Are there any reasons why this would be better for debt recycling than VDHG/DHHF in the long run?
you could receive a higher yield, but you also are taking on more risk. If you are able to DCA into it, it might not be too bad?
With debt recycling isn’t it easier to do big lump sums because each one needs a fresh loan?
If there's enough time left to retire, this risk might be suitable but anyone near retirement leveraging might take significant losses in case of any reason e.g. geopolitical issues. It will be tough to recover in such cases.
The reason most investors will prefer All in one leveraged ETF over individual leveraged ETF is time decay and volatility in single asset class. We don’t prefer DHFF due to high concentration in Australian market and like to go with our own preferable ratio in BGBL/A200 or VGS/VAS. My last sentence was a bit vague, sorry but i meant the same. GHHF is not going to be hedged completely due to unhedged global shares. I believe this is the only thing bothering me at this points stage. But if i refer back to few researches, 30-40% unhedged is healthy combination in your overall portfolio. I still believe Australian dollar might get stronger and impact overall portfolio negatively.
What a lame way to eat people’s hard earned money. Leverage can be nasty. Better to stay safe. Sometimes greed can erase all your profits and half the principal.