How to accelerate your long-term wealth creation

This interview was taped on Tuesday 18 June 2024.

Once the domain of sophisticated investors with a broker on speed dial, gearing has evolved courtesy of ETFs. Leveraging returns in one click, without the risk of a margin call holds appeal for many investors with a deep understanding of how to use them.

“There’s a range of different ways you can use a geared solution. Of course, this depends on your risk tolerance and having a view that, over the long term, markets will generally appreciate,” says Cameron Gleeson, Senior Investment Specialist for Betashares.

He points to examples of younger investors using dollar-cost averaging approaches to gearing or SMSF investors seeking to increase exposure to franking credits.

Betashares is responsible for the bulk of the geared ETF options available on the ASX, with the first listed a decade ago. It’s still a burgeoning space with many investors unaware of them, but with the market at highs, perhaps now they should be taking a closer look.

Particularly in light of Betashares’ two newest listings which offered geared exposure to the ASX’s largest companies and diversified Australian and global exposure. The Betashares Wealth Builder Australia 200 Geared (30-40% LVR) Complex ETF (ASX: G200) and the Betashares Wealth Builder Diversified All Growth Geared (30-40% LVR) Complex ETF (ASX: GHHF) are changing the face of gearing in ETFs further. 

Unlike traditional geared products where you might expect to monitor activity and dip in and out on even a minute-by-minute basis, these are designed for a longer-term strategy.

In this episode of The Pitch, Gleeson explores how to use gearing in a portfolio to build wealth and takes a closer look at the workings of G200 and GHHF.

Edited transcript

What was the rationale for launching the two new Wealth Builder funds?

The original idea actually came from a Betashares investor who was using our DHHF fund [Diversified All Growth ETF (ASX: DHHF)], which is a diversified all-growth fund, and he asked whether or not we could create a moderately geared version of that fund because he wanted to use it to build long-term wealth.

That’s the original genesis, and we as a team took that and looked at it. We looked at what sort of conditions would suit this fund and how it behaved in different parts of the market cycle. And, frankly, we were convinced. We saw this as a really good solution. We launched two funds within the Wealth Builder range, the first two funds which are GHHF – providing diversified exposure to around 4,000 Australian and global listed securities. Then G200 which provides exposure to the 200 largest ASX-listed companies.

That’s a geared version of the Betashares Australia 200 ETF (ASX: A200)?

Exactly right. These are both based on very popular existing products. They have wide support. We think we’re going to see a lot of self-directed investors target these funds and look to add them to their portfolios, as well as advisors who see these are relevant solutions for certain clients they manage.

How can investors incorporate geared strategies into their portfolios?

There’s a range of different ways you can use a geared solution. Of course, this depends on your risk tolerance and having a view that, over the long term, markets will generally appreciate.

But, some examples include a young investor who perhaps doesn’t have a great deal of capital behind them using a dollar-cost average approach to use the market’s compounding power to grow their wealth over the long term. Or, an SMSF solution for increasing the amount of exposure you can get out of your capped super contributions or indeed, increasing your access to franking credits within an SMSF.

Then, you also get investors that might want to be a bit more efficient with the amount of capital they allocate to their investments, perhaps use or release capital to pay down non-deductible debt. There’s a whole range of different ways that investors can use these funds.

They're often referred to as complex ETFs. Why is this?

ASIC has released some new rules around the naming of ETFs and that’s to help investors understand what they are buying. From April of this year, all new ETFs launched that have some form of leveraged exposure to derivatives to gain exposure must include the word ‘complex’ in the name. There are existing funds that have a 12-month grace period, for example, the Geared Australian Equity Fund (hedge fund) (ASX: GEAR). Those existing funds are also going to have to migrate across and change their name to include complex.

How are GHHF and G200 different from other geared ETFs like GEAR?

GEAR and GGUS (Geared US Equity Fund - Currency Hedged (hedged fund) (ASX: GGUS)) are our two original geared products and we launched them about 10 years ago. Those funds were designed to provide low-cost leveraged exposure to US and Australian equities. But, what they do provide is a relatively strong degree or high degree of leverage. The exposure you are going to get with these funds is roughly two to nearly three times the exposure to the underlying portfolios that they hold.

Now, in contrast, the Wealth Builder funds are much more moderately geared. GHHF and G200 provide around 1.5 times leverage, the lower level of leverage. We think that does allow someone to accelerate their wealth, but doesn’t push the volatility beyond the level that a lot of investors are seeking to remain under.

Certainly, lots of people are big supporters of GEAR and GGUS, but others are going to want something with a slightly lower level of volatility and we think this is a great solution for those people.

Build your wealth

Betashares are excited to announce the launch of a new ‘Wealth Builder’ range comprising Australia’s first ‘moderately geared’ exchange traded funds on the ASX. The ETFs are anticipated to provide a gearing ratio generally between 30-40% on a given day. For more information, please visit the Betashares website. 

ETF

Betashares Wealth Builder Australia 200 Geared (30-40% LVR) Complex ETF (G200)

Australian Shares

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ETF

Betashares Wealth Builder Diversified All Growth Geared (30-40% LVR) Complex ETF (GHHF)

Global Shares

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