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BETASHARES GEARED FUND SERIESPRACTICAL APPLICATIONS & CASE STUDIES FOR AUSTRALIAN INVESTMENT PORTFOLIOS

The case studies in this booklet utilise BetaShares Geared Australian Equity Fund (hedge fund) (ASX code: GEAR) and BetaShares Geared U.S. Equity Fund – Currency Hedged (hedge fund) (ASX code: GGUS). These funds provide a simple, cost-effective way of gaining geared exposure to the returns of the Australian and U.S. share markets respectively.

Gearing is an investment strategy whereby money is borrowed for the purpose of investing, and then combined with an investor’s own capital to provide a larger amount for investment than would be available using the investor’s own capital alone.

Investment solutions utilised

What is gearing?

Gearing share investments increases the amount invested in the share markets and, therefore, an investor’s exposure to those markets and the associated capital gains potential. In addition, gearing continues to provide access to any income and franking credit benefits that are available via ungeared strategies.

Gearing may be an appropriate investment strategy to help individuals create wealth and achieve their financial and lifestyle goals.

However, while gearing increases potential investment gains, it can also magnify related loses. As such any use of geared investments should only be utilised by clients who are comfortable with the use of gearing and can tolerate higher levels of investment volatility when compared to the share market alone.

Why gear share investments?

About this bookletThis booklet contains practical case studies that outline various geared investment strategies using BetaShares’ Geared Funds. The Funds provide investors and their advisers with a simple way to obtain cost effective geared exposure to global and Australian shares.

The case studies have been developed to assist financial advisers with some implementation ideas for their clients, and include a range of strategies that vary based upon illustrative client types and characteristics. Their aim is to provide examples of how such strategies might help clients achieve their financial and lifestyle goals.

Please note, the content of this booklet, including case studies, is general information only. It is not in any way personal financial advice and does not take into account any person’s personal or financial circumstances. All examples and scenarios provided are illustrative only.

2 BetaShares Geared Fund Series

3Geared Fund Series BetaShares

BetaShares Geared Funds provide a simple, cost-effective way of gaining geared exposure to the Australian and U.S. share markets, with a number of features not generally available with other geared investment products, including: • Simple, convenient, access to geared equities exposure via a single trade on

the ASX

• Reduced paperwork - no loan or warrant agreements, or credit approvals.

• No margin calls for investors

• Borrowing is within the Fund, with no recourse to investors

• Auto-rebalance of portfolio (ensuring the geared exposure remains within a prescribed 50-65% LVR band)

• No negative capital risk (investors can’t lose more than their initial investment).

• Lower cost of borrowing than available from most other forms of geared investments – the Fund borrows at wholesale rates

• Instant exposure to a highly diversified portfolio of shares

• Superannuation fund eligible

• Liquidity – fund is bought and sold like any share on the ASX

• Transparency – portfolio holdings available daily on BetaShares’ website

• Reduced compliance burden on the AFSL holder (compared to margin lending and warrants) – no “special” AFSL requirement outside that required for trading shares

Why BetaShares Geared Funds?

BetaShares is a leading manager of Exchange Traded Funds and other Funds traded on the Australian Securities Exchange (‘ASX’). Our aim is to provide intelligent investment solutions, which help Australian investors meet their financial objectives.

With a broad range of products now trading on the ASX, our range of Funds is one of the largest and most diverse available in the market. We offer investors simple to use and cost-effective access to equities, cash, currencies, commodities and alternative strategies, such as gearing. As at 30 June 2017, BetaShares manages over $4.5 billion in assets.

BetaShares is a member of the Mirae Asset Global Investments Group, one of Asia’s largest asset management firms. As at 30 June 2017, Mirae manages over US$100 billion globally.

Who is BetaShares?

While gearing may not be an appropriate strategy for all investors, for those who understand and are comfortable with geared investments, gearing can help investors reach their financial and lifestyle goals sooner, or make the seemingly unattainable achievable.

Many Australians strive, for example, to save for a deposit for a first home, provide for their children’s education, or fund their lifestyles in retirement.

However, many Australians struggle to save enough to reach their goals.

Prudent use of the BetaShares geared suite of funds may be able to help investors reach their financial goals.

Financial and Lifestyle Goals Achievement

BetaShares Geared Fund

Non-Super Investor Case Study

Strategy may be suitable for:Investors with existing savings, long-term investment horizons, who understand the sharemarket and are familiar, and comfortable with, using geared investments

Investment solution: BetaShares Geared Australian Equity Fund (hedge fund) (ASX Code: GEAR)


Case Study: James

James is a 25 year old accountant who is saving for a deposit for his first home.

James saves $1,000 a month (outside of his superannuation fund) and currently has $10,000 saved towards a house deposit, earning 2.80% p.a. in a bank account. Given the low interest rate James is currently receiving from his bank account, it will take James approximately 10 years to save the up to $153,000 needed as a deposit to purchase a house priced at $764,000 (the weighted average median house price across Australia’s capital cities in the March quarter 2017*). In addition, the deposit amount required is expected to increase as the value of properties grows over time, making it even more difficult for James to achieve his dream of becoming a home owner.

James has an understanding of the sharemarket and is comfortable with gearing, but wants to avoid the risk of margin calls associated with margin lending.


How BetaShares can helpInvesting in BetaShares’ Geared Australian Equity Fund (ASX code: GEAR) provides greater exposure to the sharemarket and related potential capital gains than James would have if he invested his savings in an ungeared portfolio of shares. In addition, GEAR provides access to the dividend income and franking credit benefits of Australian shares.

If instead of investing $1,000 per month into a cash deposit, or an ungeared portfolio of Australian shares, James invests this amount into GEAR at a Loan-to-Value Ratio (‘LVR’) of 57.5%1, he will actually have an investment exposure representative of the broad Australian sharemarket worth approximately $2,350 (i.e. $1,000 x 2.35 (or 57.5% LVR) = $2,350).

As illustrated in the graph below (and using the assumptions noted), this investment into GEAR each month would see James reach his savings goal of $153,000 in less than 6 years if he also switches his current $10,000 cash deposit into GEAR; versus 7.5 years if he invests his current savings and $1,000 each month into an ungeared share portfolio; or over 10 years if he continues to invest into cash alone.

Illustration only. Not a recommendation of a particular investment allocation or product.Assumptions: (i) Starting balance is $10,000 in each investment type; (ii) regular investment of $1,000 per month; (iii) cash interest rate is 2.80% p.a.; (iv) ASX 200 return is 9.02% p.a. (incl. dividend yield 4%)2; (v) franking credit level 75%3; (vi) investment in BetaShares’ GEAR is geared 2.35x (i.e. 57.5% Loan-to-Value-Ratio); (vii) GEAR fees comprise 0.80%p.a. management fee x 2.35 plus 2.4%p.a. borrowing cost x 1.35 = 5.12%p.a. (of NAV). Actual GEAR LVR will vary between 50-65%, please see BetaShares website for actual LVR on any given day. Assumed performance outcomes may not be achieved in actuality. Future performance outcomes are inherently uncertain and may differ materially, positively or negatively, from the illustrated performance shown.

Cash vs ASX200 vs GEAR

Important Note:Gearing magnifies gains and losses and may not be a suitable strategy for all investors. Investors in geared strategies should be willing to accept higher levels of investment volatility and potentially large moves (both up and down) in the value of their investment. Geared investments involve significantly higher risk than non-geared investments and investors should seek professional advice before investing, and monitor their investment actively to ensure it remains appropriate for their circumstances. BetaShares’ geared funds do not track published benchmarks. See the relevant PDS for more information on risks.

Years

Ass

et V

alu

e

James, therefore, has the potential to reach the goal of owning his own home sooner if he adopts a gearing strategy to invest his savings, using BetaShares Geared Australian Equity Fund.

Further, because GEAR’s borrowing obligations are met by the Fund, with no recourse to the investor, James cannot lose more than his initial investment and he won’t be subject to margin calls as would be the case if he had invested using a margin loan.

2Assumed ASX 200 return is based on the total return of the ASX All Ordinaries Index from 1986 to 2016. Assumed dividend yield is based on yield of the S&P/ASX 200 Accumulation Index as at 31 July 2017.3Assumed franking credit level is based on the average franking credit level of the S&P/ASX 200 Accumulation Index as at 31 July 2017.

*REIA Real Estate Market Facts for the March quarter 2017 shows the weighted average median price for houses for the eight capital cities is $763,892.

1GEAR’s LVR ranges from 50-65%. Please refer to http://www.betashares.com.au/fund/geared-australian-equity-fund/ for actual LVR on any given day.

GEAR (inc. franking) ASX 200 (inc. franking) Cash Deposit


Many investors with home loans would realise that these loans do not generate an income and the interest charged on them is not tax deductable. As such, this type of debt can be considered “inefficient”.

It may be appropriate for an Australian home owner with an outstanding mortgage to “recycle” some of this non-deductible debt into a more “efficient” form of debt – one that has the potential to reduce or repay their home loan, is tax deductible and is used to generate an investment income and potential capital growth to help reach financial and lifestyle goals sooner.

BetaShares’ geared suite of funds can be used to implement such a debt-recycling strategy.

Home loan debt-recycling

Strategy may be suitable for:Investors with home loans who are familiar with, and comfortable using, geared investments

Product: BetaShares Geared Australian Equity Fund (hedge fund) (ASX Code: GEAR)


Non-Super Investor Case Study

Case Study: Angus & Sally

Angus and Sally, who are in their mid-30s, have a $500,000, 25 year term home loan that they would like to repay sooner. They also have an Australian share portfolio with a value of $500,000, and would prefer to retain their exposure to the share market, rather than sell this investment to repay their home loan.


How BetaShares can helpBetaShares’ Geared Australian Equity Fund (ASX code: GEAR) can be used to implement a home loan debt-recycling strategy to potentially reduce or repay a home loan, and to generate potential capital growth, income and franking credit benefits from an investment in the share market with which to help fund other savings goals.

Here’s how.

If Angus and Sally sell their current ASX listed shares valued at $500,000 and invest $200,000 of the proceeds into GEAR, assuming the Fund has an internal Loan-to-Value-Ratio of 60%1 at the time of purchase, they will actually acquire an investment representative of the Australian share market with exposure worth $500,000.

Angus and Sally thereby retain their current $500,000 exposure to Australian shares and potential related capital growth, income and franking credit benefits for an outlay of only $200,000.

Angus and Sally can then use the $300,000 residual capital from the sale of their original share portfolio to reduce their home loan to $200,000. They may then also choose to leave their home loan repayment amount at its current level to repay the remaining related debt sooner, as illustrated by the graph below.

Using this strategy, Angus and Sally have reduced their home loan and in the process recycled a large part of this non-deductable debt into a more tax “efficient” deductible debt*. They have also retained their exposure to Australian shares and potential capital gains, income and franking credit benefits for a lesser capital outlay.

Loan repayment timelineIllustration only. Assumptions: Home loan interest rate is 4.50% p.a. and remains unchanged over the remaining term to repayment of the loan; home loan repayment is $2,779.16 per month and remains unchanged for the remaining term to repayment of the loan in full.

Important Note:Gearing magnifies gains and losses and may not be a suitable strategy for all investors. Investors in geared strategies should be willing to accept higher levels of investment volatility and potentially large moves (both up and down) in the value of their investment. Geared investments involve significantly higher risk than non-geared investments and investors should seek professional advice before investing, and monitor their investment actively. BetaShares’ geared funds do not track published benchmarks. See the relevant PDS for more information on risks.


* BetaShares Geared Australian Equity Fund is “internally geared”, which means the Fund borrows the money, instead of the investor. The deductibility of interest costs, therefore, occurs at the GEAR fund level. Given the income received in GEAR is expected to always exceed the borrowing costs incurred by GEAR, there should be no after tax difference between the investor receiving the benefit of interest deductibility indirectly via the Fund and receiving it directly via borrowing in their own name.



Non-Super Investor Case Study Portfolio Diversification

Portfolio diversification seeks to help the investor protect the value of their portfolio against falling returns in one industry or asset class, as this underperformance may be offset, at least in part, by other, better performing, investments held.

Using geared investments gives the investor more funds to invest and, thereby, the means to diversify their portfolio across various companies, industries and asset classes.

As BetaShares’ Geared Funds hold share portfolios that are representative of the broad share market, they offer diversification across Australian and U.S. company shares. The Funds can also be used to free up capital for investment in other asset classes too, thereby allowing an investor to further diversify their portfolio.

Strategy may be suitable for:Investors with existing share portfolios who are familiar with, and comfortable using, geared investments

Product: • BetaShares Geared Australian Equity Fund (hedge fund) (ASX Code: GEAR)

• BetaShares Geared U.S. Equity Fund - Currency Hedged (hedge fund) (ASX Code: GGUS)

Case Study: Philip and Penny

Take Philip and Penny, for example, who have a portfolio comprising 10 ASX-listed shares with a total value of $100,000.

Philip and Penny want to diversify their investment portfolio across other asset classes, but don’t want to decrease their current exposure to the share market. Nor do they at present have cash available with which to purchase other assets.


How BetaShares can helpBetaShares’ geared suite of funds provides magnified exposure to the Australian and U.S. share markets and, therefore, the means to potentially increase portfolio diversification across these asset classes when compared to what an investor’s own funds alone could achieve.

They can also be used to free up capital for investment in other assets, while helping, in this case, Philip and Penny retain the current value of their share investments.

Here’s how.

If Philip and Penny sell their current ASX listed shares valued at $100,000 and invest $21,250 in each of BetaShares’ Geared Australian Equity Fund and Geared U.S. Equity Fund they will have reinvested a total of $42,500 of their own capital.

However, if the Funds have current Loan-to-Value-Ratios of 57.5%1, Philip and Penny will actually retain a $100,000 exposure to shares, while also significantly increasing their portfolio diversification across investments representative of the Australian and U.S. share markets. Instead of owning 10 Australian shares, they now have geared exposure to 200 Australian shares and 500 U.S. shares!

Philip and Penny might then chose to invest their remaining $57,500 capital in other assets to achieve further portfolio diversification, as outlined in the table below.

Illustration only. Not a recommendation of a particular investment allocation or product. Assumes LVR of GEAR and GGUS is 57.5%. Actual LVR will vary between 50-65%, please see BetaShares website for actual LVR on any given day.

Philip and Penny’s Investment Portfolio Diversification

BeforeInvestment In BetaShares Geared Funds

AfterInvestment In BetaShares Geared Funds

Asset Class Amount Invested Asset Class Amount Invested

10 Australian shares $100,000

Exposure to 200 Australian shares (BetaShares GEAR)

21,250 own capital plus $28,750 internal gearing

$50,000

Exposure to 500 U.S. shares(BetaShares GGUS)

$21,250 own capital plus $28,750 internal gearing

$50,000

Bonds $42,000

Property (listed) $10,000

Cash $5,500

Total Investment Exposure $100,000 Total Investment Exposure $157,500

As the above shows, using the BetaShares Geared Funds, Philip and Penny have retained their current investment exposure to the share markets and achieved portfolio diversification across the asset classes they wanted.

Further, as a result of using BetaShares Geared Funds to achieve this outcome, Philip and Penny have also increased the value of their investment exposure from $100,000 to $157,500 with the potential for greater capital and income returns relating to this.


1GEAR and GGUS LVRs range from 50-65%. Please refer to http://www.betashares.com.au/fund/ geared-australian-equity-fund/ and http://www.betashares.com.au/fund/geared-us-fund-betashares/ for actual LVR on any given day.



Superannuation Investor Case Study

From 1 July 2017, the Australian Government lowered the annual concessional (pre-tax) contributions cap from up to $35,000 to $25,000 per financial year for all individuals, to be indexed in line with wages growth.

This has had the effect of reducing the amount Australians can contribute to their superannuation funds at the concessional tax rate of 15%.

For a late stage accumulator, in particular, the effect of this change might have a damaging effect on their retirement plans.

An investment in BetaShares’ GEAR fund might help to keep such an investor’s retirement lifestyle goals on track.

SMSF Concessional Contributions Cap Strategy

Strategy may be suitable for:Investors with self-managed super funds (SMSFs) who are familiar with, and comfortable using, geared investments


Case Study: John

John is a pre-retiree, aged 50. To achieve his retirement goals, John was relying on being able to contribute more to his SMSF at the tax rate of 15% going forward than is now permitted under the change to the concessional contributions cap.


How BetaShares can helpBetaShares’ Geared Australian Equity Fund (ASX: GEAR) is an eligible means of gearing share investments within superannuation.

If John contributes $25,000 per financial year to his SMSF and invests $10,000 of this into BetaShares’ GEAR fund and the remaining $15,000 into an income-generating bond exposure, such as BetaShares’ Australian Bank Senior Floating Rate Bond ETF (ASX code: QPON), he may actually add $40,000 in investment exposure annually to his superannuation account.

Here’s how.

As illustrated in the table below, assuming John currently invests $25,000 per year into ASX 200 shares within superannuation, but going forward instead invests $10,000 in GEAR, at an average Loan-to-Value-Ratio of 60%1, this will result in the same total investment exposure value of $25,000.

A further investment of $15,000 in QPON will result in a total investment exposure of $40,000 for John’s initial outlay of $25,000 in concessional contributions to his superannuation.

1GEAR’s LVR ranges from 50-65%. Please refer to http://www.betashares.com.au/fund/ geared-australian-equity-fund/ for actual LVR on any given day.

Illustration only. Not a recommendation of a particular investment allocation or product. Assumes LVR of GEAR is 60%. Actual LVR will vary between 50-65%, please see BetaShares website for actual LVR on any given day.

John’s Annual Concessional Contributions to Superannuation

BeforeInvestment In BetaShares Funds

AfterInvestment In BetaShares Funds


Australian shares $25,000

Australian shares(via BetaShares GEAR)

$10,000 concessional contribution plus

$15,000 internal gearing $25,000

Bonds(via BetaShares QPON)

$15,000


Using BetaShares’ GEAR, John is able to comply with the $25,000 concessional contributions cap, while still getting more investment exposure than this (i.e. $40,000) in his SMSF to help achieve his retirement goals.

Further, the potentially greater capital growth, income and franking credit benefit John may receive as a result of the larger exposure to Australian shares that GEAR provides may further help him reach his superannuation savings goals.

The illustration below (using the assumptions noted) compares the increase above John’s current superannuation balance that may be achieved if he continues to invest $25,000 per year in ASX 200 shares within his SMSF, with the assumed increase in investment value that may be achieved over time from the $40,000 per year investment exposure outlined in the table above.

Over this 15 year investment time horizon, if John continues to invest his annual $25,000 superannuation contribution into ASX 200 shares, his SMSF balance will have increased by an additional $754,910 at the end of that term. However, if John instead, going forward, invests his annual $25,000 superannuation contribution into the portfolio of BetaShares GEAR and QPON as outlined in the table above, his SMSF may have additional equity of $1,045,272.

John may, therefore, be $290,362 better off if he implements this BetaShares Concessional Contributions Cap strategy.

SMSF Balance; franking credits included

Illustration only. Not a recommendation of a particular investment allocation or product. Assumptions: (i) starting balance is $0 for each investment scenario - any assumed existing balance at the start of the period has been excluded from the calculations in the scenarios illustrated; (ii) ASX 200 return is 9.02% p.a. (including dividend yield 4% p.a.)2; (iii) franking credit level 75%3; (iv) investment in BetaShares’ GEAR is geared 2.5x (i.e. 60% Loan-to-Value-Ratio); (v) QPON return is 3% p.a.4; (vi) GEAR fees comprise 0.80%p.a. management fee x 2.5 plus 2.4%p.a. borrowing cost x 1.5 = 5.6%p.a. (of NAV); (vii) QPON management fee is 0.22%p.a. Assumed performance outcomes may not be achieved in actuality. Future performance outcomes are inherently uncertain and may differ materially, positively or negatively, from the illustrated performance shown.

Years

Additional Balance – before Additional Balance – after


2Assumed ASX 200 return is based on the total return of the ASX All Ordinaries Index from 1986 to 2016. Assumed dividend yield is based on yield of the S&P/ASX 200 Accumulation Index as at 31 July 2017.3Assumed franking credit level is based on the average franking credit level of the S&P/ASX 200 Accumulation Index as at 31 July 2017.4Assumed QPON return is based on (i) assumed cash rate of 1.5% p.a., plus (ii) assumed approximately 1.5% p.a. pick up (yield + capital gains) based on QPON’s simulated historical pick up from July 2007 to July 2017.





Generally, the earlier in life someone begins saving for their retirement and the more they save for this on a regular basis, the more they will have in superannuation savings to fund the retirement lifestyle they want.

From 1 July 2017, the annual concessional (pre-tax) contributions cap is $25,000 per financial year, indexed in line with wages growth. This is the maximum an individual Australian can contribute to their superannuation fund at the tax rate of 15% each financial year.

However, using gearing, an investor is able to obtain investment exposure that is greater than the $25,000 concessional contributions cap and still be taxed at the concessional rate within their superannuation fund. This may be achieved using a gearing strategy, such as those available from BetaShares’ geared suite of funds.

Assuming that such exposure grows in value over time, this means the investor will ultimately have a larger superannuation balance at retirement.

This is as a result of the increased exposure to the sharemarkets and related potential capital gains, income and franking credit benefits a gearing strategy offers.

This investment strategy may be particularly suited to younger Australians, as they have a longer time horizon to retirement, and may indeed be appropriate whether or not individuals are in a position to contribute to superannuation the maximum $25,000 per financial year allowed.

Lifetime (Long-Term) Accumulation – Giving Super Savings a Boost

Strategy may be suitable for:Younger investors who are familiar with, and comfortable using, geared investments



How BetaShares can helpBetaShares’ geared suite of funds are an eligible means of gearing share investments within superannuation.

If Alison contributes $25,000 per financial year to her superannuation fund and invests just $5,000 of this into BetaShares’ Geared Australian Equity Fund (ASX code: GEAR), she may actually add $6,765 in investment exposure annually to her superannuation savings.

Here’s how.

As illustrated in the table below, an investment of $5,000 in GEAR at an average Loan-to-Value-Ratio of 57.5%1 will result in a total geared investment exposure value of $11,765 and gain a related exposure to a diversified portfolio of Australian shares!

A further investment of $20,000 into an ungeared portfolio of shares will result in a total investment exposure of $31,765 for Alison’s outlay of $25,000 in concessional contributions to her superannuation.

Case Study: Alison

Alison is aged 25 and understands the benefit of growing her superannuation savings over time. She contributes to her superannuation fund the maximum $25,000 per financial year allowed under the concessional contributions cap, but would like to give her superannuation savings a further boost, if possible.

Alison currently invests in Australian listed shares and wants to retain a full exposure to this growth asset class within her superannuation.

Illustration only. Not a recommendation of a particular investment allocation or product. Assumes LVR of GEAR is 57.5%. Actual LVR will vary between 50-65%, please see BetaShares website for actual LVR on any given day.

Alison’s Annual Concessional Contributions to Superannuation

BeforeInvestment In BetaShares Funds

AfterInvestment In BetaShares Funds


Australian shares $25,000

Australian shares(via BetaShares GEAR)

$5,000 own capital plus$6,765 internal gearing

$11,765

Australian shares (ungeared)

$20,000




Using BetaShares’ GEAR, Alison is able to comply with the $25,000 concessional contributions cap (and benefit from the related lower taxation rate), while still getting more investment exposure than this (i.e. $31,765) in her superannuation fund to help achieve her retirement goals in later life.

As illustrated by the graph below (and using the assumptions noted), if Alison continues to invest her annual $25,000 superannuation contribution into an ungeared portfolio of Australian shares, her superannuation balance would increase by $1,399,273 above its current balance over the 20 years depicted (by which time she will be aged 45).

However, if Alison instead invests just $5,000 of her annual superannuation contribution into BetaShares GEAR and the remaining $20,000 into an ungeared portfolio of Australian shares, as outlined in the table above, her superannuation fund would have an assumed increase in equity of $2,081,623 above its starting balance over 20 years.

Alison would, therefore, be $682,351 better off in 20 years’ time if she implements this long-term accumulation strategy, using the assumptions in the illustration.

Superannuation Balance, Maximum Concessional Contributions

Years

20k in ASX 200, plus 5k in GEAR ASX 200 only

Illustration only. Not a recommendation of a particular investment allocation or product.Assumptions: (i) Starting balance of $0 in each investment scenario ignores existing superannuation fund balance at that time; (ii) Contribution to superannuation is $25,000 per financial year; (iii) investment amounts illustrated are net of 15% concessional contributions tax; (iv) ASX 200 return is 9.02% p.a. (incl. dividend yield of 4%p.a.)2;(v) franking level of 75%3; (vi) investment in BetaShares’ GEAR is geared 2.35x (i.e. 57.5% Loan-to-Value-Ratio); (vii) GEAR fees comprise 0.80%p.a. management fee x 2.35 plus 2.4%p.a. borrowing cost x 1.35 = 5.12%p.a. (of NAV). Actual GEAR LVR will vary between 50-65%, please see BetaShares website for actual LVR on any given day. Assumed performance outcomes may not be achieved in actuality. Future performance outcomes are inherently uncertain and may differ materially, positively or negatively, from the illustrated performance shown.



2Assumed ASX 200 return is based on the total return of the ASX All Ordinaries Index from 1986 to 2016. Assumed dividend yield is based on yield of the S&P/ASX 200 Accumulation Index as at 31 July 2017.3Assumed franking credit level is based on the average franking credit level of the S&P/ASX 200 Accumulation Index as at 31 July 2017.

In this illustration, Alison has retained the full exposure to Australian shares she wanted within her superannuation fund, while also increasing her superannuation savings over time as a result of the greater exposure to the sharemarket and related potential capital gains, income and franking credits the investment in BetaShares’ Geared Australian Equity Fund provides.

Geared Fund Series BetaShares




Portfolio diversification seeks to help the Self-Managed Superannuation Fund (‘SMSF’) member protect the value of their portfolio against falling returns in one industry or asset class, as this underperformance may be offset, at least in part, by other, better performing, investments held.

Gearing gives the SMSF member more funds to invest with, and, thereby, the means to diversify their portfolio across various companies, industries and asset classes.

BetaShares’ geared suite of funds can help investors diversify their portfolios and are an eligible means of gearing share investments within superannuation.

As these Funds hold share portfolios that are representative of the broad share market, they offer diversification across Australian and U.S. company shares. They can also be used to free up capital for investment in other asset classes, thereby allowing an SMSF member to further diversify their portfolios.

SMSF Portfolio Diversification

Strategy may be suitable for:SMSF Investors who are familiar with, and comfortable using, geared investments

Product: • BetaShares Geared Australian Equity Fund (hedge fund) (ASX Code: GEAR)

• BetaShares Geared U.S. Equity Fund - Currency Hedged (hedge fund) (ASX Code: GGUS)


Case Study: Richard

Richard has an SMSF with assets valued at $450,000, largely comprising residential property and cash, as outlined in the table below.

Richard wants to further diversify his SMSF portfolio, with a weighting towards growth assets, including retaining his current exposure to residential property. However, Richard does not have any additional capital with which to achieve this outcome.

Richard’s SMSF Portfolio

Asset Value


Cash $107,500

Residential real property $300,000

Total $450,000

How BetaShares can helpBetaShares’ geared suite of funds provides magnified exposure to the Australian and U.S. share markets and, therefore, the means to potentially increase portfolio diversification across these asset classes when compared to what an investor’s own funds alone could achieve.

They can also be used to free up capital for investment in other assets within a superannuation fund.

Here’s how.

If Richard sells his current ASX listed shares valued at $42,500 and invests $21,250 of the sale proceeds in each of BetaShares’ Geared Australian Equity Fund and Geared U.S. Equity Fund, he will have investments representative of the Australian and U.S. share markets, thereby increasing the diversification in his portfolio. Instead of owning 5 Australian shares, he now has geared exposure to 200 Australian shares and 500 U.S. shares!

Further, because these Funds are internally geared, assuming they have Loan-to-Value-Ratios of 57.5%1 at the time of purchase, Richard will actually acquire investment exposure of $50,000 in each, thereby not only increasing his exposure to shares, but also the overall exposure of his SMSF portfolio, without the need for any additional capital outlay.

Richard may then chose to invest $80,000 into bonds, thereby reducing his exposure to cash as an asset class and further improving the diversification across his portfolio, as outlined in the table and charts below.

1GEAR and GGUS LVRs range from 50-65%. Please refer to http://www.betashares.com.au/fund/ geared-australian-equity-fund/ and http://www.betashares.com.au/fund/geared-us-fund-betashares/ for actual LVR on any given day.

Illustration only. Not a recommendation of a particular investment allocation or product. Assumes LVR of GEAR and GGUS is 57.5%. Actual LVR will vary between 50-65%, please see BetaShares website for actual LVR on any given day.

Richard’s SMSF Portfolio Diversification

BeforeInvestment In BetaShares Geared Funds

AfterInvestment In BetaShares Geared Funds



Exposure to 200 Australian shares (BetaShares GEAR)

21,250 own capital plus $28,750 internal gearing

$50,000

Exposure to 500 U.S. shares(BetaShares GGUS)

$21,250 own capital plus $28,750 internal gearing

$50,000

Bonds $80,000

Cash $107,500 Cash $27,500

Residential real property $300,000 Residential real property $300,000


Richard has achieved the further diversification he wanted in his SMSF portfolio, without any additional capital outlay.

Further, as a result of using BetaShares Geared Funds to achieve this outcome, Richard has also increased the value of his SMSF investment exposure from $450,000 to $507,500 with the potential for greater capital and income returns relating to this.

67%9%

24%

Property

Australian Shares

US Shares

Bonds

Cash

Property

Australian Shares

US Shares

Exposure – Before Exposure – After

59%

10%

10%

16%

5%



BetaShares GEAR and GGUS Fund Information

Ease of Access

BETASHARES GEARED FUND

MARGIN LOANS LISTED WARRANTS

GEARING LEVELS50-65% - set and managed

by FundCustomisable and managed

by investor

Set by issuer – typically between 50-90%; fluctuates

with market movements

ACCESS Bought and sold like a shareRequires loan agreement,

credit checksRequires client agreement

form

DOWNSIDE RISK Limited to capital invested Unlimited – recourse to client Limited to capital invested

DIVERSIFICATIONHigh – broadly diversified

share portfolioVaries depending on underlying exposure

Varies depending on underlying exposure

MARGIN CALLS No margin calls for investorsYes – investors can

experience margin callsNo margin calls for investors

BORROWING COSTAccess to wholesale funding

ratesRetail funding rates Retail funding rates

POTENTIAL FOR INTEREST DEDUCTIONS

Yes – interest costs reduce taxable distributions to

investorsYes Yes

INVESTOR ABILITY TO PRE-PAY INTEREST

No YesYes – included in purchase

price

ISSUER CREDIT RISK No NoExposed to full counterparty

risk of issuer

SUPER FUND/ SMSF ELIGIBLE

Yes Generally not Yes

ASX CODE FUND NAME DESCRIPTION MANAGEMENT FEES

GEARBetaShares Geared

Australian Equity Fund (hedge fund)

Cost-effective geared exposure to the returns of the

Australian sharemarket

0.80% p.a. of gross asset value

GGUSBetaShares Geared U.S Equity Fund (hedge fund)

Cost-effective geared exposure to the returns of the

U.S. sharemarket

0.80% p.a. of gross asset value

The ASX-traded BetaShares Geared Fund Series provides a simple to access, cost-efficient way to obtain geared exposure to a broad portfolio of Australian or U.S equities. Current alternatives may involve higher levels of downside risk, more complicated administration or higher borrowing rates. The table below summarises the primary differences:

Geared Investment Product Comparison – the Alternatives


Contact us

Email: [email protected]

Phone: 1300 487 577 (within Australia) +61 2 9290 6888 (outside Australia)

Learn more about BetaShares

BetaShares is a leading manager of ETFs and other Funds that are traded on the Australian Securities Exchange (‘ASX’). Our aim is to provide intelligent investment solutions for Australian investors.

Visit our website and explore our full range of Funds that can help you achieve your financial objectives.

Important Information:

BetaShares Capital Ltd (ACN 139 566 868 AFS Licence 341181) is the product issuer. This is general information only and does not take into account any person’s particular circumstances. It is not a recommendation to buy units in any BetaShares Fund or to adopt any particular strategy. Investors should read the relevant PDS (at www.betashares.com.au) and consider whether the product is appropriate for their particular circumstances before deciding to buy or hold units. No assurance is given regarding the future performance of any BetaShares Fund or the payment of any distributions. Investors may buy units on the ASX through a broker or financial adviser.

BetaShares is not a tax adviser and nothing in is document is intended as tax advice. Investors should obtain professional tax and financial advice before making any investment decision.

To the extent permitted by law BetaShares accepts no liability for any loss from reliance on this information. www.betashares.com.au

betashares geared fund series · 2 betashares geared fund series. ... cost-effective way of gaining...

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