Banking Matters – Geared Funds

This article first appeared in the July 2006 edition of The Henley Group's Money Matters bulletin. It is reproduced with permission.

The Henley Group has never recommended geared investment products to its clients but we often come across individuals that do have such products. This article looks at why more and more investors with such products are coming to realise that they may have misunderstood the risks associated with gearing their investments.

Many of the individuals that we meet with geared investments believe that they have been following a low risk strategy. However, although the underlying products may well be low risk, gearing your investment is unlikely to be. The Securities and Futures Commission recently warned that it regards gearing as a "high risk investment strategy, even when coupled with an otherwise low risk product."¹