Margin Loans Gearing to buy shares - the real story!?

Discussion in 'Sharemarket Investing Platforms, Tools & Services' started by Simon Hampel, 7th Nov, 2006.

Join Australia's most dynamic and respected property investment community
  1. islandgirl__

    islandgirl__ Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    103
    Location:
    Middle of beautiful Moreton Bay, Qld
    Valuable information guys. I am looking into funds at the moment and in my calculation I have taken the 5 or 10 year figures.

    I intend to pull out fund prices and distibutions going back as long as I can to chart performance. The focus on the past year to see how they are going before I can determine when and how much to buy. Unfortunately all this analysis is time consuming but thanks to you guys I have narrowed my focus to a handful of funds which suit my needs.

    I appreciate the insites that members on the forum are so willing to share.
     
  2. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    12,386
    Location:
    Sydney
    My approach to picking a fund is not so much based on which has performed the best in the past. I do look at past performance - but only to find funds that have shown that they can perform well.

    I pick high performing funds (not necessarily the highest) which meet several criteria:

    1. I like the fund manager and their approach (the amount of information they provide in reports and analysis is important)
    2. They have a range of funds that suit my goals (eg geographic and/or sector diversification)
    3. I can get good leverage on the funds through my chosen margin lenders

    #3 is actually very important. As we've discussed in this thread and the similar one by Nigel on gearing levels ... a high performing fund will be easily outperformed by one which performs nearly as well but can be geared higher.

    Of course this only makes a difference if you are prepared to gear higher. But even if you won't gear higher, a higher max LVR also provides a larger buffer - which may well help to avoid a margin call, so it's still a good thing to look for in a fund.

    I tend to select a couple of fund managers and choose funds from their portfolio. At the moment I hold 11 funds across 3 fund managers.

    I may add a new fund manager to my list in the future if I think I have a gap in my portfolio I'd like to fill (eg. a well performing sector or geography which my existing portfolio doesn't have good exposure to).
     
  3. FrankGrimes

    FrankGrimes Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    103
    Location:
    Sydney, NSW
    Very interesting Sim, thanks for your post. It certainly is an interesting one, people are very afraid of gearing into shares.

    I have a friend who is on a good income, he rents, has some savings etc.. You get the idea

    I saw the Macquarie Fusion fund and thought it might be of some interest to him (I have brought him along to many investment seminars and given him the books etc) because -

    1. High income, get some tax advantages by gearing at 100%
    2. No margin calls
    3. Capital protection

    Yet he would rather have his money in an ING fund. The idea of borrowing such large sums for "managed funds" turned him off.. I honestly don't see the issue
     
  4. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    12,386
    Location:
    Sydney
    If you can find me someone who actually understands a Macquarie product (especially the fees), I might consider them - but I don't think anyone does :rolleyes:
     
  5. Meisterin

    Meisterin Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    109
    Location:
    Sydney
    Thank you for your analysis and insight into investing into funds, Sim.
     
  6. FrankGrimes

    FrankGrimes Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    103
    Location:
    Sydney, NSW
    Yeah its a bit like that.. Their website is absolutely horrible as well, so difficult to find anything...
     
  7. tropic

    tropic Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    129
    Location:
    WA
    I have been doing shares for well over 10 years now and have never done margin lending. First I feel the companies that I invest in already have enough borrowing on shareholders behalf. Second, the interest rates is higher than home equity loan.
    Basically I am more conservative than some of you guys here. But I do understand to make it big usually you need to invest big.
    I will consider margin lending if I can find a good risk management technique that doesn't cost too much.
     
    Last edited by a moderator: 10th Nov, 2006
  8. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    12,386
    Location:
    Sydney
    tropic - can you describe what the risks to you are that you need to manage ? We might be able to make some suggestions.
     
  9. tropic

    tropic Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    129
    Location:
    WA
    Hi Sim,

    Basically a concern over a risk of holding shares when/if the market turns around. For example, we had international shares going into negative return for few years and saw some managed funds losing 30+%. If I have a margin lending I would have to top up several times. That would be a very uncomfortable feeling.

    The more I invest in shares the more allocation I will need to have on managed funds for international shares (diversification). The dividends will mess my negative gearing/tax calculation, some years they pay big dividends (it reduces the unit price by the same amount too)? Some years very little. All international funds pay unfranked dividends. How do you managed this?

    The rest is probably a matter of comfort level. I intent to increase my shares investments but maybe only as much a my home equity loan permits, with some buffer.