New US sharemarket ETFs

Here are two new exchange traded funds (ETFs) that invest in the US sharemarket but with a twist. The BetaShares Geared US Equity Fund - currency hedged (hedge fund) (ASX: GGUS) allows you to gear into the US market while the BetaShares US Equities Strong Bear Hedge Fund - currency hedged (BBUS) is designed to allow investors to profit from the market's falls.

The geared fund invests in the 500 largest securities listed in the US, weighted by market capitalisation. Its gearing ratio will generally vary between 50% and 65% and the fund takes care of the borrowing. Investors are not exposed to the risk of margin calls. If there is a 1% fall in the US sharemarket in a day, the ETF will deliver a 2% to 2.75% increase in value. But if the market rises by 1%, the value will fall by 2% to 2.75%.

The bear fund invests in cash and sells futures contracts such as the US S&P 500 equity index futures contracts. When the US S&P 500 falls, the fund return goes up but when it rises the return goes down. The fund also uses a short position, which varies between 200% and 275% of net asset value.

Australian investors have poured $1.2 billion into overseas ETFs over the past six months. BetaShares managing director Alex Vynokur says the two new products allow informed investors to tactically manage their US market exposure without the complexity of instruments such as contracts for difference (CFDs) or the risk of margin calls.

Money verdict

Approach with caution as these are not your plain vanilla US share ETFs tracking an index. They need active management because the gearing magnifies gains and losses. They are more volatile, with larger moves up and down. You need to do your homework and understand the risks. The funds are ideal if you are experienced with hedging and gearing. Also you will pay active management fees: 0.74% (geared fund) and 1.19% (bear fund).

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