LIC & LIT Leveraging to buy shares

Agree, that's why I sold out of the geared share fund completely at the top of the market.(a week before the crash started) Last time I sold out of it was two weeks before the GFC. This is how I take advantage of their extreme volatility.
Both times I didn't know the market was going to drop, but I knew the market was at record highs and that's the time to run for the exit in geared funds. Once the party's over you don't want to be around for the hangover.
I'm already dollar cost averaging back into the CFS geared fund now.

Willy

 

Thanks for the information @DoggaPP I'm also with State Custodians with my PPOR in a similar situation lot of equity and low balance left on mortgage and was thinking of LOC to do same thing. was debating whether I would need to go with one of the banks as wasn't sure if SC would do the loan for shares bu nit even sure if they ask what the LOC is being used for? assume the rate was very competitive as SC are one of the most competitive in terms of rate

 

I was offered 2.85% based on our ability to service the loan. Seeing as we were only asking for 50% of our PPR valuation they advised us that we were being sensible and conservative

 

Is generally a horrible idea, as we can now see

 

hmm I tried their online tool and the cheapest rate was 3.03%. May I ask what options did you choose to get that rate? I also own my house, no debt and have a good income.

 

Hi Simon,
I'm researching geared funds for some of the reasons you have outlined.

I'm mainly looking at US geared funds as I want to have exposure to the US market post the CV crisis. Do you have any experience with international geared funds?
The current AUD is a drawback but the way the US market outperformed ASX after GFC the exchange rate becomes irrelevant. Clearly this may not be the same this time around, but the stimulus and liquidity they are going to throw at the market suggests that it might.

I understand the risks and rewards, have used margin loans conservatively before, but this will be my first investment with ETFs, so doing my research and also reaching out to those that are more experienced.

Also, do CFS have ETFs as such or are they all super/advisor based?

Thanks

 

Yeah, wow, that's a pretty handy return for anyone that missed the GFC drop.
Thanks for posting.

 

Some of the discussions that I could find around geared ETFs:

https://seekingalpha.com/article/1864191-what-you-need-to-know-about-the-decay-of-leveraged-etfs
https://seekingalpha.com/article/4244064-long-term-drifts-of-leveraged-etfs
Ask Firebug Fridays 8 - Aussie Firebug
How to buckle up for bull markets with ETFs
Leveraged & Inverse ETFs: Understanding Monthly Resets
Definition, Introduction, and Dangers of Leveraged ETFs
​

It seems that some of the long term (3, 7 years) return have resulted in positive drifts (>gearing) with the caveats being:

• To get the trend right.
• Re-balancing, management and loan costs will.

Risk would be lesser if closer to bottom and if it forms a small part of portfolio.

@Willy I presume it would be safe to reverse the following position with a fair margin of safety

@Willy and @Simon Hampel is there any literature around:

• Entry positioning or criteria.
• Active vs passive management. E.g. buying/DCA after hypothetical bottom ( + 15%) and waiting 18-36 months for market to recover.

As always Not Advice applies.

 

Absolutely in my opinion.

I've started dollar cost averaging back into the geared funds both in SMSF and outside super.
With the margin of safety being that the geared funds represents of small percentage of the overall portfolio and a small percentage of the funds that I currently have to invest back into the market. I'm not waiting for the bottom and I'm not waiting for the market to recover. I've set up automatic investments each month and the next time I look at them will be when I hear on the news that the sharemarket is at record highs.

Willy

 

I wouldn’t leverage ... seen many people blow up. super risky stuff

 

Is the risk in leveraging the same when

• Market @7200 vs 5000 vs 3600
• Allication is 100% vs 20% vs 5%
• Leverage is with a margin loan vs internal gearing

In hind sight would these people have had bettter risk management or avoidance of leverage is the only way ?

I do not intend for this to come across as contradicting your views but more as challenging my own.

 

Well technically the risk is higher now as volatility is higher.

Historically you could argue over the long term buying at lower prices is better than buying at higher prices as the market has had a bias for going up over time, but because volatility is higher you are therefore more likely to get margin called and closed out before that happened.

Ultimately depends what your risk appetite is. Like I’m happy to drop lots of money into a position, but I personally never gear or get into geared funds. If you put something on the line - especially if it’s geared - your risk tolerance should be high enough that you can lose it all.

 

Have they blown up in internally geared funds?

Willy

 

Yea I saw someone blow up on a highly levered fund in America. Bit of an exotic product though. Was like xvix x 3 or something. Ridiculous stuff

 

You are certainly reducing the risk with those measures. You don't need to take big risks.
I've seen a 5% allocation in a geared fund make the rest of the portfolio look like a waste of time.

Willy

 

Just to weigh in here, here is a list: https://etfdb.com/themes/leveraged-3x-etfs

I use Interactive Brokers

While those products don't fit my personal investing style, I do have LOC on standby. I would expose myself to a product with potential for margin call.

I don't have an issue with LOC or even redraw (within reason). Unlike a margin loan, the mindset is to have enough cash to cover the cost of interest for the holding period.

 

Do you find IB lags or is VERY slow when you click a button?

 

For IB - no issues with me?

Also, a correction from my previous post - I would NOT expose myself to margin calls

 

I'd borrow aud$10B too if I could get it at a total cost of 15basis points, didn't impact servicabiliy and no risk of margin calls.

NSW Generations Fund: NSW borrows $10b to bet on markets