First Sentier Geared Australian Share Fund Complex ETF (ASX:LEVR)*

My name is David Wilson and I run the geared share strategy for First Sentier. It is the largest and longest running geared shared strategy and we have been running it since 1997. 

It is important to understand that when we put together the geared strategy that it's not just a geared version of our other strategies. It's very much put together with the gearing sitting behind the portfolio in mind. 

When you are running a geared share strategy, you are looking for companies that can operate through any market conditions. So we look at that from terms of liquidity point of view. We also look in terms of the quality of the company, in terms of management and the gearing on the balance sheet. So we are able to invest in a higher quality level of company and we are also able to access greater liquidity. It means when markets fall and often liquidity more generally dries up, we are more than able to liquidate our holdings and meet the margin calls as and when they arise. 

Gearing is the opportunity to lever up your particular position. If an investor invests 45 dollars, we are able to borrow 55 dollars and expand that position size up to 100 dollars and then you get the full returns for that 100 dollars invested. 

Now the important thing is that gearing works both ways. So when the market rises, your 100 dollars rises with the market accordingly. But also when the market falls, your 100 dollars falls, not just your 45 dollars. 

Importantly, we manage the margin calls. What that means is that when markets fall very quickly, you are required to post more capital to meet the fact that your shares are now worth less. 

That was very well tested during the early stages of COVID in March 2020, when you had the fastest ever 30 percent decline in markets, they fell 30 percent in 19 days. In 1930, they fell 30 percent in 20 days. In those 19 days, we were able to meet those margin calls, whereas if you had owned those stocks yourselves via marginal lending product, then you would have had to have met those margin calls. 

One of the real attractions of our geared strategy is our low borrowing costs. 

A very attractive borrowing rate allows us to amplify returns because we are able to lever up the capital that you invest in our strategies by adding borrowings into that portfolio. 

The yield on our portfolio is around market averages as is the franking, but you are able to collect that franking across the full portfolio, not just the amount invested initially, but you get that across the borrowed levels as well. 

It is very important to understand the risk profile of the geared strategy. 

We encourage investors that have a longer term perspective that are able to cope with short term falls and rises for that matter and they can see through their investment over a long period of time and therefore market fluctuations which are augmented by the gearing and do not force them to exit their positions. So we are quite happy to invest in high quality companies that sit within the top one hundred as well as companies that can grow over time. 

The portfolio positions we hold in the geared strategies are typically longer term positions. We do not tend to trade. We tend to hold, you know, three to five years. With that sort of perspective in mind, we think that presents the opportunity to best capture the benefits of gearing and also to best capture the benefits of the companies that we are investing in.