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BetaShares Australian Equities Bear Hedge Fund ETF (ASX:BEAR)

Key Information

  • Name: BetaShares Australian Equities Bear Hedge Fund ETF
  • Ticker code: BEAR
  • Issuer: BetaShares
  • Management Expense Ratio (MER): search our complete list
  • Exposure: Australian shares - INVERSE HEDGE FUND
  • Potential allocation: Tactical

What does BEAR do?

The BetaShares Australian Equities Bear Hedge Fund ETF is designed to provide inverse or opposite exposure to the largest Australian shares, based on market capitalisation.

What is BEAR used for?

The BEAR ETF could be used by investors who expect the Australian share market to fall and hope to partly protect their portfolio or profit from that fall. For example, if an investor expects the market to fall 20% they might consider owning this ETF (before the fall occurs, of course).

What BEAR Invests In

The BEAR ETF invests in futures contracts to get the opposite exposure of the performance of Australia's ASX 200 share market index (including dividends). In other words, when the ASX 200 rises the ETF should fall. When the ASX 200 falls the ETF's price should go up.

How The BEAR ETF Works

The BEAR ETF attempts to bet against the market by selling equity index futures contracts. These are a form of derivative contract. We explain futures and derivative contracts on this page.

Is BEAR Risky?

Yes.

We believe BEAR is a VERY HIGH RISK ETF to own in a portfolio for a few reasons, some of them can be found here:

  1. BEAR provides the opposite exposure of shares, which tend to rise over time. Meaning, it is expected to perform poorly over long periods of time.
  2. BEAR is likely to be highly volatile.
  3. BEAR does not generate dividends (in fact, it's expected to lose from dividends being be paid)
  4. There is no guarantee the BEAR ETF will be able to provide perfect inverse exposure to shares via the futures market.

Ultimately, we believe this ETF is not necessary in a diversified long-term portfolio, but if it is used it should be considered for a very small position.

There's no guarantee the ETF will provide effective or perfect protection in a falling market. 

BetaShares is one of Australia's largest ETF issuers, by number of ETFs issued on the ASX. At the end of 2018, Betashares had $6.1 billion of money invested in its ETFs.

what-is-a-bond-man-thinking

BetaShares was founded in Sydney by a group of finance professionals who have a venture capital (VC) business called Apex Capital Partners. BetaShares was an 'in house' investment for Apex but grew quickly as ETFs took off.

Betashares is part-owned by Mirae Asset Global Investment Group, a specialist ETF business which manages nearly $130 billion.

$6b+ invested in BetaShares ETFs

BetaShares launched its first ETF in 2010 but has grown its ETF count rapidly to have around 50 ETFs in the market today.

BetaShares has issued index fund ETFsrules-based ETFs and actively managed funds in an ETF wrapper. To launch its active funds, BetaShares teamed up with Legg Mason and AMP.

Depending on the hedge fund strategy used, the fund manager and the market environment, hedge funds can range from moderate risk right through to extremely risky.

That's why it's important to make sure you understand the strategy or speak to a professional adviser who can explain the risks -- before investing in this ETF.

Some of the general or common risks to hedge funds include:

  • Liquidity: sometimes (like in the bad times) it can be very hard to get your money out of a hedge. When they 'blow up', it might never come out (or if it does you might only get a fraction of what you put in).
  • Gearing/leverage risk: Many/most hedge funds use something called "gearing" or "leverage" to boost the returns of their investment portfolio. For example, in simple terms, a hedge fund might use debt or borrowed money to amplify the potential returns (remember it doesn't always work!). While most hedge funds try to secure some form of downside protection (e.g. using derivative contracts to avoid losing too much on one position), if they get an investment wrong it can be worse than expected due to the leverage/gearing.
  • Key-person risk: quite often with hedge funds, there are one or two really smart people running the show. If they decide to stop, get sick or something else happens, the returns can fall away.
  • Performance risk: Past performance is not a guarantee of future performance -- no matter what ANYONE says. Tip: If you think you've found a hedge fund with really good performance, make sure it's the same team of people running it today as when the performance was achieved. There's no point relying on the performance is the people who achieved it cannot be found on the website!
  • Backtest & Marketing risk: Sometimes, the pictures look too good to be true, the strategy "makes sense", the fund manager and analysts are "wicked smart" and "they ran a simulation or backtest of the strategy over more than 20 years of data and it worked really well". Don't be fooled into thinking that strategies will always work going forward. For example, during the GFC many hedge funds thought they were protecting against risks (because they modelled it) but they went out of business!

The number one rule is: don't lose money. 

The bestETFs Australian shares sector includes ETFs, managed funds and index funds which cover the ASX and national stock exchange (NSX). It also includes other sharemarket-focused ETFs and funds which may hold investments overseas (e.g. via the New Zealand or US exchanges).

Performance Characteristics

Over the ultra-long-term, the Australian share market has proven to be among the best-performing in the world. We truly are 'the lucky country'.

One of the unique features of the Australian sharemarket is a willingness by companies to pay substantial dividends back to shareholders. We believe this may be a result of Franking Credits.

bestETFs assesses the performance of this ETF against its peer group, which commonly use the ASX 200 or ASX 300 indices as their benchmark. The ASX 200 includes Australia's top 200 companies, ranked by market capitalisation. The ASX 300 includes the top 300.

We believe this benchmark provides the most reliable, consistent and relevant benchmark for assessing this fund/ETF against others in the sector and the market more broadly.

***

The benchmark we use to assess the ETF's performance -- and help us determine whether the ETF would be a good fit in our model portfolio -- may differ from the fund's chosen benchmark.

Note: you should always consult a licensed and trusted financial adviser before doing anything. This information is factual information and should not be considered financial advice.

This ETF could be used as part of a 'tactical' or 'satellite' allocation in a diversified long-term portfolio because of its unique strategy, costs, risk-reward profile and the expectation of long-term returns.

What is The Core-Satellite Approach?

A core-satellite approach puts investments into two 'buckets' depending on the expected risk and returns.

Bucket 1: Core Investments

The 'core' is the larger part of an investment portfolio and could be reserved for more conversative investments. For example, this might include diversified, low-cost and easy to understand funds, bonds, shares or ETFs.

If you're new to investing, the core is a good place to start.

Core ETFs might include:

Bucket 2: Satellite/Tactical Investments

The 'satellite' or tactical bucket is the smaller part of a portfolio (e.g. 0% to 30% of your entire portfolio). In this section, investors might decide to take more risk, invest in unique or unproven strategies, buy fast-growth individual shares, etc.

Tactical strategies could be higher risk, higher cost and more complicated strategies that are used in the hope of outperforming the averages (e.g. ASX 200, S&P 500, etc.).

Tactical ETFs might include:

The bestETFs website currently provides free access to a database of Australian ETFs, index funds and (soon) selected managed funds. The website contains factional information only and should NOT be considered a source of financial advice (meaning you should NOT act on the information presented here).

If you are wondering whether this ETF is a good investment, you should speak to a licensed and qualified financial adviser. Alternatively (or in addition) you should always read the ETF's Product Disclosure Statement (PDS), which should be available on the ETF provider's website. The PDS explains some of the risks, the fees and other important information.

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FAQs

What Is An ETF?

Investing in an Exchange Traded Fund or ETF is typically a way to buy a tiny slice of many different shares, bonds or currencies with one investment. Technically, ETFs are 'funds' or legal 'trusts' which allow investors to pool their money together in one place and invest in the same strategy.

Learn more here.

What Is An Index Fund?

An index fund is a type of 'managed fund' which pools money in one place and follows an index. For example, an ASX 200 index fund buys all 200 shares included in the S&P/ASX 200 index maintained by Standard & Poor's.

Learn more here.

What's The Difference Between An 'Active' and 'Passive' Investment?

Traditionally, 'active' investors pick individual stocks they think will outperform the market (e.g. ASX 200 index). For example, an 'active' fund manager would pool investors' money together and invest that money in their best stock ideas.

'Passive' investors are investors who buy into standard index funds, like one that follows the ASX 200 or USA's S&P 500. These are also run by fund managers but they don't use their 'skills' or 'analysis' to pick individual stocks. Instead, they invest in the entire market and investors benefit from the growth of all companies, on average.

What Are Rules-Based Investments?

In recent times we've witnessed the emergence of 'rules-based' or 'smart beta' investment strategies, which are kind of in-between active and passive.

Typically, these strategies use automated rules to invest with strategies covering stocks/shares, bonds/fixed income, currencies, commodities (e.g. gold) and derivatives contracts (e.g. options). For example, a rule might be 'buy this share if XYZ happens' or 'sell that share if ABC is true', etc..

Learn more here.

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