BetaShares Geared Australian Equities ETF (ASX: GEAR) $34.93

The GEAR ETF provides leveraged exposure to large Australian shares, using internal gearing to magnify both market gains and losses. It offers investors a higher-risk way to increase exposure to the Australian share market without borrowing directly. BetaShares GEAR effectively borrows money inside the fund and combines it with investors’ capital to buy a larger portfolio of Australian shares. For example, if GEAR has $100 of investor capital and borrows another $100, it can hold $200 worth of shares. If the market rises 5%, the portfolio gains roughly $10, which equates to about a 10% gain on the original $100 before interest and fees. However, a 5% market fall would translate to roughly a 10% loss.

Importantly, the gearing level is actively managed and periodically rebalanced, rather than targeting a fixed daily multiple like some leveraged ETFs. This means GEAR can magnify ASX returns significantly in both directions, but it should not be thought of as simply delivering 2.14x (current leverage)  the ASX 200 every day. The downside is that this leverage comes at a price, with the ETF carrying a 0.78% pa fee.

The GEAR ETF is the most established $550mn local-facing leveraged ETF, regarded by many as the cleanest high-octane ASX 200-style exposure, perfect for a short, sharp rally which MM believes is a distinct possibility in the coming months, but we caution that another 5% downside wouldn’t surprise.

• We like the risk/reward towards the GEAR ETF as it falls towards $33 support, seeing ~20% upside in the coming months.