Managed Funds Gearing into a geared fund

Am I correct in understanding that you are able to have up to a 65%/70% LVR on the CFS geared aussie share fund? So in effect you can gear into a geared fund?

 

Hi,

According to Sim's comparefunds.com.au, CFS wholesale 452 geared Aus share has Suncorp allowing a 70% gearing. So it appears you can gear into a geared fund. Not that I would, though.




Johny.

 

People love the buzz from 'get rich quick' schemes. That all or nothing thrill. Sorry, not me.





Johny.

 

If you gear up, you should hold the gear in your hand.

In 2006 after I read the budget and knew we could contribute more into the super in the hot economic air, I borrowed $200,000 and geared them into the Perpetual Australian Share Geared fund(wholesale) and transferred my super into Colonial Australian Share Geared Super(personal super) fund. I guessed the professionals should have good risk management and I could be a happy passive investors to collect the profit in future only.

However I made a fatal mistake in my life again. Gearing could be double edges to all of us. We could not expect others to make the money for us just as we could not hand our shops to someones, forget, and don't hold the gear to slow down to avoid the risks and speed up for profit.

The fact is when we try to make the easy money we would pay the cost easily. You use the gear but you hand the gear to others which would cause disasters if something wrong to yourself. The consequence for my passive investment dream around geared funds were terrible that more than half of my borrowed and accumulated super capital gone.

Fortunately I started to update my mind since 2004. I have played in the market with what cash were left with what I learned. I nearly doubled my capital I played actively since 2005 per year and I doubled my capital again in GFC and the V-shaped recovery by buying more between Nov 2008 - March 2009.

However the passive investment in the geared funds has put too much damage on me. How long time could you get $300,000 loss back? GFC tells us that no one could escape the hit or crash if they could not stop and get back at the time they should. Who could do that for you? You are your enemy in the market. You passive attitude would result in active damage sooner or later.

All of us heard the words: buy when the Street is full of blood and sell when the market is crazy. If most of funds could do so, we would not have the crisis. Don't get the gears before you know how to use the gear for a sure profit. If you are sure, you don't need anyone to hold your gears. Don't let the falling edge cut down our arms under any conditions.

 

I have analysed the CFS Geared Fund and it is pretty much an index fund so it matches the capital gains on a 2:1 basis and of course heads south at the same ratio. If you check out the unit price when the market was at it's peak you can see that from this point you would expect about a 100% return if the market was to head back to that point. From what I have read Colonial is able to borrow funds at a wholesale rate from Commonwealth Bank (its parent company) so it is not paying the 9% + interest rates that are offered to the public. This as a result allows the fund to gear at approx 50% and pay a reasonable dividend at the end of financial year which carries with it a significant amount of franking credits . I am invested in this fund for my Superannuation and as I see it as a long term proposition I have never looked back at the great returns it has offered. Sure it dropped like a stone during the GFC but I felt this was an optimum time to be buying in as CFS manage the amount of gearing so that as the unit prices fell they gradually sold off assets in the fund to ensure the gearing remained at 50% and as the unit prices have climbed they have gradually bought back the assets. This is a great feature of a managed fund and something that would be both time consuming from a time basis and also a nightmare from a tax basis. I had noticed that Suncorp allows you to gear up to 70% which is good but of course very risky in todays market. I also like the CFS International Geared fund but of course it does not pay franked dividends. I recently read that one of the best places to be investing for the long term at the moment is in international funds, in particular the US funds. Worth thinking about. All depends on your time frame of course.

 

benbegg

"I have analysed the CFS Geared Fund and it is pretty much an index fund so it matches the capital gains on a 2:1 basis "

In the states they have 2:1 and 3:1 index based ETFs. We might get them here, in the future.




Johny.

 

Question your assumption at the door to heaven in case...

In the market no any one would put money in if they know their money would be in the hell someday later.

We all have a lot of assumption how our money could grow up to a money tree but few could enjoy to harvest the money in future.

Don't hurry to claim our options are the best but lay down a table at the door of the heaven to double, triple check your assumption. Great artist feel hard to throw the first stroke on the paper. Great doctors never forget "first no harm." Great investors warn themselves "no loss, never have loss, and never forget no loss."

Of course if you have made your mind, you have made your destination for what you want to be with your first betting usually. Cautious and guarded optimism with correct personal characters make the future. But they should not be the barrier to make the future since you could be very lucky!

I trust you and good luck!

 

Wdongli makes a very good point and has certainly experieced the impact when the markets move against you. Too many clients I have come across (especially post GFC) in this highly leverage position.. The run to commodities with the US printing notes at least recoup substantial losses.


To margin loan/gain equity out to invest into a geared investment is of high risk. Therfore timing becomes even more important when placing these assets.

In addition, managed funds in wrap platforms is a joke. The cost to run any investment/superannuation with the multi layering of fees can be quite expensive. Not for our group and especially not for our clients.