Leveraged ETFs, Ren’s Melbourne Cup tip & Speccy Magee returns

Bryce: [00:00:16] Welcome to another episode of Equity Mates Or should I say, Hey there, my friends, it's your lightning fast buddy. And welcome to another electrifying episode of Equity Mates, where we're not just sprinting through the world of investing, we are breaking world records. As always, I'm joined by my equity buddy Ren. And who am I? 

Alec: [00:00:34] Bryce, You are Usain Bolt. Yes, I actually was going to say you're Lightning McQueen Now. That's a reference that I don't think you'll get. 

Bryce: [00:00:44] I don't think so. 

Alec: [00:00:44] So. But you haven't seen the classic Disney movie cars. 

Bryce: [00:00:48] Not to be able to reference that.

Alec: [00:00:50] Your pop culture knowledge is subpar. But Usain Bolt's great again.

Bryce: [00:00:57] Correct. Well done. He's done it again. Note for producer Sascha, We need to make this harder. Please.

Alec: [00:01:04] Well, Bryce, like Usain Bolt, we've got a lot to get through in a short space of time. That analogy doesn't quite work because he actually runs shorter distances. But like Lightning McQueen, Let's keep rolling. We're here to talk all things investing. And as a reminder, as we get started whilst we are licensed, we're not aware of your personal financial circumstances. This show is for education and entertainment purposes only. The one drawback of getting ChatGPT to translate your introduction is that the disclaimer often gets. 

Bryce: [00:01:33] Lost while we can get it ChatGPT gets paid to do the disclaimer, but I feel like that would be legally irresponsible. Anyway. 

Alec: [00:01:40] Anyway, a lot to get through today. We're answering a question from Equity Mates listener, Wil, about all things leveraged ETFs and the timing on that was good because you've done a lot of work on leveraged ETFs recently. So excited to hear about that. We're going to be rejoined by Speccy Magee. Now people who are new to this show, first of all, welcome. Secondly, you're in for a treat. So Speccy Magee is our anonymous Speccy tipster. He gets a lot of information across his desk that he brings to the show via this information is debatable. Yeah, we'll get to it. But first of all, Bryce, let's get to the news of the moment because there is a lot going on. The earnings firehose continues over in the United States. But first of all, unfortunately we are in a correction. 

Bryce: [00:02:28] We are in a correction, Ren. It's sort of snuck up on us. Now, technically, a correction occurs when the market drops 10% from its high and then you hit a bear market once you're 20% or more below the most recent high. 

Alec: [00:02:47] Now, not technically. I actually don't think we're in a correction in Australia. 

Bryce: [00:02:51] No, sorry. US. Yeah, yeah, yeah, yeah. 

Alec: [00:02:53] And technically, I actually think we've already come out of it. 

Bryce: [00:02:55] Oh really? We've bounced back well, since the time of writing this. 

Alec: [00:02:58] Yeah, I think it's, I was looking this morning and I think it's less than 10% time.

Bryce: [00:03:03] Well, at the time of putting that in the note, we were at. 

Alec: [00:03:05] Ten but like, you know, there or thereabouts, the number is kind of arbitrary, 10%, 9%. The fact of the matter is we've seen a bit of a sell off recently. 

Bryce: [00:03:15] Yeah, well, the market seems just to be going sideways at the moment, like within that sort of 10%. And this is sort of from what I would say I'm. I'm not going to say it was from sort of late July.

Alec: [00:03:25] Sorry, I'm just you said I'm going to say and you said, I'm not going to say and then you said it anyway. So. 

Bryce: [00:03:31] I mean, it alluded to that. I was just going to make up an arbitrary date and be like, Oh, it was from this point in time. 

Alec: [00:03:37] But did you? 

Bryce: [00:03:39] No. That's why I said. 

Alec: [00:03:40] No. Keep that.

Bryce: [00:03:41] So from mid July it's been trading sideways somewhat and the trend has been down. I think at the time of looking into this.

Alec: [00:03:50] Sorry, from mid-July, it hasn't been trading sideways. It's down 10%.

Bryce: [00:03:54] Well, we're back up.

Alec: [00:03:56] It's down now seven and a half percent from the end of July. So in the last week it's up about 3%. For me like all of this conversation is so arbitrary and so short term. American market's up 11% for the year. Crazy. The Australian market, ASX 200 is down 2%. But yeah, for me it's just the. 

Bryce: [00:04:17] Nasdaq's up 35% year to date.

Alec: [00:04:20] Yeah. And everyone talks about the Magnificent Seven. Yeah. The big tech stocks who have so this is S&P 500 without the big seven I think the S&P 500 is up 0.1% or something. They've just driven it big tech stocks. 

Bryce: [00:04:35] Yeah. And they continue to year to date, 35%. I think my bold prediction was going to be 3%. 

Alec: [00:04:41] Yeah, well, we're coming into the year and things were looking pretty gloomy.

Bryce: [00:04:44] Yeah, yeah, yeah. Very gloomy. 

Alec: [00:04:46] Anyway, I look, I think my thoughts on this is that the overall market is driven by the performance of individual companies and the performance of individual companies is really tied to the broader economy at the moment. And the story that we've been living through all of last year and all of this year is the inflation and interest rate stories. And here in Australia that story had another page written with data that came out last week from the Bureau of Statistics, supporting this data for the September quarter inflation data surprised on the upside and in this case, surprising on the upside is bad. The Consumer Price Index rose 1.2% for the quarter. Economists expected 0.9%. Now, that difference doesn't sound like a lot, but the fact that it was higher than expected isn't great. The 12 months to September 2023, inflation is 5.4%, again, higher than well higher than desired. And what that means is that higher rates are coming. 

Bryce: [00:05:54] Higher rates are coming. Interestingly, overnight, the Federal Reserve at the time of recording held rates where they were in the US. But the sense was that they're definitely not going down for a while. 

Alec: [00:06:06] Yeah. Yeah. Now there's no certainty in life and investing, but it's the Melbourne Cup next Tuesday and there is a short odds favourite for next Tuesday as not any of the horses running. 

Bryce: [00:06:18] It's an interest rate rise.

Alec: [00:06:19] It's an interest rate rise because the RBA also meets on Melbourne Cup Day, the first Tuesday of every month. Melbourne Cup is the first Tuesday of November. I was listening to comedian v Economist this morning. Great podcast. Go and give it a listen. Also Adam from Comedian V Economist, hosted the Buy Hold and Sell episode that came out on the Equity Mates podcast last Tuesday and will be out again tomorrow. So go and listen to CVE if you want more from Adam and his brother Thomas. They were talking about the potential of an interest rate rise and this inflation data. Bond market is pricing is giving it a 90% chance that there will be an interest rate rise at this meeting, 90%.

Bryce: [00:06:57] So if you rewind to six months ago, maybe within the last six months, the consensus has been that there will be one more rate rise this year. But I think that was probably said at a time where these inflationary pressures were not surprising on the upside. What is also interesting we're talking in the office before recording is that house prices hit near record highs again here in Sydney and the RBA needs to take the sting out of this stuff. 

Alec: [00:07:29] I don't think yeah, it's I don't think that that's possible. 

Bryce: [00:07:33] No. 

Alec: [00:07:34] With the migration numbers. 

Bryce: [00:07:37] But then that they then need to do they then need to look at how they're actually measuring because housing costs, rent goes into CPI. We're moving out of our house. We bought a house. Obviously I told my landlord that we were moving and that we had some mates who wanted to move in and could take over the lease. They were prepared to pay more than we were currently paying. We're currently paying 750 bucks a week. Call it a two bed. It's one Betty, plus a small study. They then went to the landlord who has already increased our rent 25% in the last 12 months. The landlord came back and said, I'm taking it from 750 to 950 a week. 

Alec: [00:08:24] Yeah. 

Bryce: [00:08:25] $200 increase in rent and like you can't like they just said we know we're going to get it, like we're going to get this. And so far, how does the RBA take that into consideration? Interest rates are going. 

Alec: [00:08:37] Yeah, I mean interest rates are a pretty blunt instrument and the two biggest contributors to the continued inflation numbers are housing costs, which is just a supply and demand problem at the moment, and fuel which is a war in the Middle East problem at the moment. Yeah, there's not a lot that interest rates can do. Except destroy demand. And that's an economic term for literally just price people into not being able to spend. Yeah.

Bryce: [00:09:06] Which is not in the scenario we want to go. 

Alec: [00:09:08] So there's not a good answer here. The IMF also came out last week and said that Australia needs to keep lifting rates to bring down inflation. That is, yeah, you know, like interest rates to go to 8%. But if there's war in the Middle Eastern and we're adding double the amount of people as houses where building it feels like structurally you don't have a good answer there. So unfortunately like this is a very, very unsatisfying part of the show that we lament something. 

Bryce: [00:09:35] Well, I'm just thinking we should probably get Chris on the phone for 15, 15 minutes for that. Be near impossible. Yeah, just to get his sense because as we've said multiple times, he has somewhat thought that there's another large Trent, Trent tranche of rises coming. So anyway. 

Alec: [00:09:52] Well, to close out the interest rate conversation last week we spoke about the choice between fixed and variable rates for your home loan. I asked in the Facebook discussion group after the episode what people thought. Not surprising. Strong opinions. The majority thought variable. Yeah, the majority of those, there is one Ryan in the Facebook discussion group he made the. The House always wins. And the banks in this case are the house, and they're going to put a fixed rate at a point where they are going to win. 

Bryce: [00:10:24] Yeah, which is what they did, which is what they've done. We've figured out. 

Alec: [00:10:26] My my thought back to Ryan is that the House certainly didn't win the last few years with like people who fixed their rate when there was a one or two in front of it. True, they definitely beat the banks. So I don't know if the house always wins. I don't know. Like for me, you know, what we're talking about now? Is there not going to be another one rise? You probably want to stay variable if it's going to be like three, four. 

Bryce: [00:10:50] Yeah, yeah, yeah.

Alec: [00:10:51] Then you want to be fixed.

Bryce: [00:10:52] Yeah. The bad news is it doesn't have to be a decision that is made. You're locked in from day one. So that's. That's probably allowing me to sleep at night.

Alec: [00:11:02] Yeah, well, I mean, the good news is that your rent isn't going from 600 and something to 950.

Bryce: [00:11:09] Yeah, it's unbelievable. It's crazy. Let's not do any. Yeah. 

Alec: [00:11:13] All right, let's move on. Anyway, there is plenty of news happening. Twitter. X.

Bryce: [00:11:19] Yeah. Headline that grabbed the attention this week. They, if we rewind to when I said rewind twice now rewind to when Musk bought Twitter at a $44 billion valuation. Had to borrow I think he put it in about $14 or $15 Billion himself and borrowed the rest from the big banks. It is now valued at $19 billion, so he's wiped off a considerable chunk. This is based on the shares that are now being offered to staff members at $45 a share. So that's what X are valuing themselves at $19 billion. Rumour has it that Musk is trying to drive this company down to a point where he can then buy back the debt from the major banks that that took it off him or that have, I guess, given him the money and then he can take full control, apparently in a situation where these big investment banks come in and and do buyouts like they have, they then actually go on sell the debt. But no one's buying the next one, so they're stuck with it. So there's rumours that Musk himself wants to buy it back. Speaking of companies down the toilet, Ren, also WeWork are rumoured to be filing for bankruptcy within the next week or so. The share price has tanked 50%, it could be the end of WeWork.

Alec: [00:12:38] Yeah, what a story that was. What? A $45 billion company at one stage. Yeah. Adam Neumann, the founder, walks away with $1,000,000,000. Handshake as part of the like he was He just walked out of the company. Yeah and he did he got $2 billion to walk away which is more than any way WeWork shareholders will get.

Bryce: [00:12:58] It's currently worth $121 million. 

Alec: [00:13:00] Yeah. 

Bryce: [00:13:00] Unbelievable. Unbelievable. But anyway, let's move to the earnings because it is continuing over in the States and we're going to just do a bit of a summary. Last week we did big tech, and big tech is getting bigger, but there are some other key takeaways that are coming out of this reporting season. 

Alec: [00:13:20] Yeah, two key ones. First one is the inflation story continues. Now over in the US, the Fed, Federal Reserve decided not to raise interest rates, kept them in that 5.35 to 5.5% band. So it's you know, it's meaningfully higher than Australia's. But what we're seeing in companies reporting numbers is inflation coming through. So McDonald's reported a 14% increase in revenue and an 8% increase in same store sales despite falling foot traffic. So less customers. But increasing revenue means one thing. 

Bryce: [00:13:58] Increase prices. Yeah.

Alec: [00:14:00] And don't get at me about increased basket size because it's not that it's increase prices that are driving this. 

Bryce: [00:14:05] Increase in the Big Macs and whatever else. 

Alec: [00:14:09] So mean know going to go there and then another big food player Coca Cola they reported an 11% in non-GAAP revenue growth so like how they account for it. So 11% revenue growth just for simplicity. And they said that was made up of 2% volume growth. So selling more Coke and other products and 9% price or mix growth. So mixes like selling more expensive products. But again, it's the price of the products. So two big American staples, inflation is coming through the system still. 

Bryce: [00:14:47] We saw that with Coles and Woolies I think when they reported. So not surprising, particularly in retail when this is all pushed through. Second takeaway, Ren, the EV hype has now turned into EV reality. Yes. [00:14:59][12.1]

Alec: [00:15:00] They stop thinking about EV companies as tech stocks and start thinking of them as capital intensive, low margin manufacturers. Because that's what car makers are. And the reality is starting to hit for a lot of these companies. So Tesla share price is down 18% since it's reported a couple of weeks ago. It had to cut prices to hit sales targets. So obviously that affected revenue and profit. Ford, who have made a massive debt on EVs, I think they said they're going to spend 12 billion over a certain period of time. Their EV business unit posted a loss of 1.33 billion for the quarter. Which was bigger than the quarter before they had plans to build a like a mega campus for lithium ion batteries in Kentucky, in the States. They put that on hold. They've got another big project they're building in Tennessee that's going to go ahead. But they are slowing down the spending as their losses increase. General Motors is also pushing back production of its new slate of EVs again. Just demand isn't quite where they want it to be and pricing is not quite where they want it to be.

Bryce: [00:16:11] Yeah, so it feels like they've all taken bets when Tesla was absolutely screaming away. They've all taken bets. Want to get in the game. I think that's an interesting point though, Ren. Come on. Where I heard it, maybe it was on a podcast or on the news that there was a survey done maybe 12 or 18 months ago to see the, I guess, the desire for Americans to buy EV vehicles. That has now, they've redone it and it's now got worse. Like American, more Americans have said they're less likely to buy EVs now than they were 18, 24 months ago. It's an interesting story, like across the board as well. It's ESG generally feels like. 

Alec: [00:16:51] It's out of fashion.

Bryce: [00:16:53] Yeah, like funds are getting pumped, a big investment, I guess firms that had all this strategic plays around ESG are pulling back on what they're doing. It's really interesting to see how the consumer is changing their tune when it comes to this stuff. 

Alec: [00:17:08] It also. Yeah, yeah. I've seen a lot more polestar's in Australia. I don't know if you've noticed that Polestar, the EV. 

Bryce: [00:17:17] Is that the T?

Alec: [00:17:18] Yeah, Yeah. I think it's meant to be 

Bryce: [00:17:21] like a Yeah, yeah, yeah, yeah, yeah. 

Alec: [00:17:23] We got an, an Uber and it was one of them. Pretty nice. The thing that all these EVs have big sunroofs. 

Bryce: [00:17:29] Yeah. 

Alec: [00:17:30] Yeah, yeah. But Tesla's got this one has it as well. 

Bryce: [00:17:33] I want an EV. Yeah. Yeah. It's just really hard when you don't have someone to be how to charge it. 

Alec: [00:17:38] That is a consideration. Yeah. Yeah. I think the EVs story isn't going away. Like, it's just that there's more competition and yeah, you're right. There's a general sort of anti ESG sentiment in some parts. But, you know, the story is also these Chinese and European carmakers are having a red hot crack like BYD continues to go from strength to strength. The Chinese car maker and more of the Europeans are getting involved. Um, so it's just it's car making has never been as. 

Bryce: [00:18:16] Sexy. 

Alec: [00:18:16] As sexy. Yeah, yeah, yeah. It maybe in like the early 1900s when you know. 

Bryce: [00:18:21] And these carmakers also don't have someone like Musk in the media leading them, pumping them off, being the salesman. Yeah. Because it really led to half of Tesla's valuation. Yeah.

Alec: [00:18:31] Yeah. Like for EVs to get where they need to be from an environmental perspective, we've got to stop thinking, Stop thinking of Teslas as luxury luxury cars, you know, like the the Ferrari's and the Lamborghinis and start thinking of them as Toyota Camrys and Toyota Camry, mass market, low margin products. Yeah. And that's just the reality that these car makers are finding themselves in. Yeah. Yeah. Nothing wrong with the Toyota Camry, though. 

Bryce: [00:18:59] No, no. 100%.

Alec: [00:19:01] All right, Bryce. Let's take a quick break here. And then on the other side, we have a question from Will. He wrote through an Instagram to ask about leveraged ETFs. And you've done a little work on that. So a good time for us to chat about that. 

Bryce: [00:19:17] Hey Equity Mates, Bryce here. Have you caught up on our new series Ask an Advisor. It's when we put questions to some of Australia's best professional financial advisors from you, the equity Mates community. 

Audio Clip: [00:19:28] Hey, Bryce, Ren, I've got a question. How do you recommend Managing a share portfolio with employee share entitlements? What happens to that money? Got probably one of my biggest concern. When is it okay to let emotion drive your investing decisions? 

Bryce: [00:19:42] Ask an advisor live in the equity mates feed now. 

Alec: [00:19:47] Welcome back to Equity Mates. A reminder that if you have a question that you want us to answer on the show or you want us to put to one of Australia's best financial advisers, hit us up, ask equity mates dot com. We're going to answer a question about leveraged ETFs. But before we do, Bryce, I've got to say you haven't mentioned a big change.

Bryce: [00:20:08] Your face. If you're watching YouTube, you will understand what I'm talking about. If you are following our Instagram page, you would have seen last week that we are doing Movember. It is that time of year where we shave our faces and grow a moustache in support of raising money for men's health. And Ren's has shaved his beard, which has I don't can't remember the last time that you shaved your beard. But not only that, I can never remember a time where you had no. No hair on your head and no hair as a beard. 

Alec: [00:20:45] Yeah. Now, I've been wearing a hat so far cause I thought I would do on camera The Mr. Potato Head revealed. The overwhelming comment has been, How much do we need to donate for you to shave the eyebrows as well? 

Bryce: [00:21:02] Oh, my goodness. Is there an answer that.

Alec: [00:21:06] Would you put on it? I know you're busy.

Bryce: [00:21:10] So I'll just say ten bucks.

Alec: [00:21:12] Try asking. 

Bryce: [00:21:13] You should put a number on it. And if someone donates that amount.

Alec: [00:21:19] If one person collectively.

Bryce: [00:21:22] If collectively the equity mates. Community raises the figure, you will shave your eyebrows. 

Alec: [00:21:29] Yeah. Oh, that's okay. That's the spirit of it. 

Bryce: [00:21:32] Okay. All right, let's figure. 

Alec: [00:21:34] 50 grand. Yeah. I thought it was going to be. 

Bryce: [00:21:36] I'm. I'm cool with that. Let's go. 

Alec: [00:21:38] Is that. Is that unreasonable? 

Bryce: [00:21:39] I don't think that's unreasonable. That would be over a grand. Over a grand a day.

Alec: [00:21:43] Yeah. If everyone listening to this podcast donates $0.50, we'll get there.

Bryce: [00:21:48] Yeah. No. Yeah. Alright. Well, there they go. The challenge is on the table. 50 grand, and Ren will shave his eyebrows. As I said, if you really want to see this in action, jump on YouTube or check out our Instagram page. Links to the donation page will also be in the show notes and on our Instagram. 

Alec: [00:22:07] Nice. All right. All right. Well, let's get back to leveraged ETFs. This question came through from Will.

EM Community: [00:22:16] Hey Bryce and Ren, I'd love to hear your thoughts around levered indices such as the TQQQ or SQQQ given market conditions before hearing your comments. Love the pod. Thanks. 

Alec: [00:22:30] All right. Well, thank you for that question, Will. Bryce, you've done a lot of work recently on leveraged ETFs, so I guess over to you. 

Bryce: [00:22:38] Thanks, Ren. The work I was doing was actually trying to understand the impact of the fees on leveraged ETFs versus not. So to be clear here, I use leverage ETFs as part of my portfolio, which gives me leverage exposure to the US market and to the Australian market. So I use GEAR. which is the for Australian and I use GGUS for the U.S. leveraged and they both track essentially the ASX 200 and the S&P 500. So the equivalent would be buying the A200 Betashares or the SPI, whatever it is for the S&P 500. Specifically, what we'll spoke about in his question was TQQQ and SQQQ they are American ETFs that are leveraged, they leverage the Nasdaq. So the TQQQ is long and the SQQQ, it's actually an inverse and shorts. The Nasdaq essentially what leveraged means is that it amplifies the returns of the index. So let's say it says it's a three times leveraged ETF. It means that you should expect three times the return of that index. 

Alec: [00:23:49] So the S&P 500 goes up 1%. You should expect a 3% return. 

Bryce: [00:23:53] Correct. That is what it should do. In theory, the differences between the UK-EU and skew and the ones that I use, both of the ones I use at Betashares, is that the underlying mechanics of it? And so we're not going to get into detail on that, but TQQQ and SQQQ use derivatives and options so they are synthetic leverage, whereas betashares actually internally gear the fund and they borrow money themselves and, and leverage the fund that way. So the question from Will was how are we thinking about it in the current environment with volatility? Because in the short term these products can be pretty effective because you're amplifying the short term price movements of the index to your point. Ren if the S&P goes up 1%, you're going to get 3%. 

Alec: [00:24:44] Yeah, unfortunately, if it goes. Down 1%, you lose 3% as well.

Bryce: [00:24:49] Absolutely. Long term, though, the debate actually becomes more divisive. The reason being is that the way that these products work is they're matching the daily return, not the annual return or the long term return. And when you do the maths on it, if you're not careful, it can actually be like dilutive to your returns over time. And to sort of give an example of that, what happens is let's say the index, you're putting $100 in, the index drops 10%. So your value is now $90. If you're just doing the normal index, not leverage, you need the market to rise just over 11% to get back to that $100. In a leveraged ETF, let's say it's three times leveraged $100 drops to $70 because it's three times the 10% drop. You then need the market to rise where you need your stock to rise 42% in order to get back to even. And because it's leverage, you actually need the market to rise 14% to get back to even. So you can see there that you actually need the market to move more than if you were just in the non leveraged index. Where this becomes a problem though, is it resets every day. And so that happens on day one. Day two, if the market drops again, you're already 3% down. And so you can see that over time, if there's large volatility, you actually need huge movements for you to start catching up.

Alec: [00:26:31] So what you mean day one, it falls 10% data, it rises 11%. If you were non leveraged you back to even. Yeah. And then if day three falls again, you just fall again. But with the leverage product, day one, you fold 10%. It's actually down 30%, data up 11% is up 33%. That's not enough to get back to even then. Day three, another fall. You're falling even further. 

Bryce: [00:26:56] Exactly. Yeah. 

Alec: [00:26:58] So my takeaway from that is that in times of volatility, the leverage products slip. 

Bryce: [00:27:05] Yes. And so this then led me to. All right, let's compare how this has played out over the last five or so years, because we've experienced COVID, we've experienced the drop in 2022, etc.. 

Alec: [00:27:20] We've experienced a terrible month in 2020 and then a great year and a half and then a terrible year and then a pretty volatile time. 

Bryce: [00:27:30] Yes. 

Alec: [00:27:31] So we've kind of experienced all market conditions. 

Bryce: [00:27:33] Yes. It's not, it hasn't been great. 

Alec: [00:27:35] So how's it going?

Bryce: [00:27:36] So for GEAR, which is the Aussie one. I then compared this to the A 200. 

Alec: [00:27:42] Yep.

Bryce: [00:27:42] Over the last five years. 

Alec: [00:27:43] So and to be clear, both the GEAR and A200 track the top 200 Australian stocks. Gear is what, three? It's just under three times. It's between two and three times leveraged. 

Bryce: [00:27:56] So this is just flat price movement. The ASX 200 is up, 15%, gear is flat. 

Alec: [00:28:03] Oh really? Yeah. In the past five years. Yeah. 

Bryce: [00:28:06] The reason is gear started to outpace A200 during the COVID recovery, started smashing through it because there was that period of time where the volatility was just up, up, up, up. And so it's the same here. Yeah, leverage on the upside is compounded. Yeah, but then it actually hasn't recovered from in the 2022 lows. It started coming back. But because of the volatility we've experienced since the start of last year, which has been overwhelmingly negative, it has struggled to actually catch up to and surpass the ASX 200 index. So it's actually flat. However, if you then look at the impact of dividends because you're getting leverage to return on dividends, you then become it becomes much closer from just a pure share price point of view, though. It's flat. 

Alec: [00:29:00] Fascinating. Yeah, I mean, even just looking at the two charts and just a cursory glance, you can see that the initial February 2020 fall when COVID hit and it felt like 30% in a month. So the normal ASX 200 then hit all time highs and past all time highs in 2021 and by August 2021, so about 18 months later it was the normal ASX 200 was up 7%. Yeah, whereas GEAR rather than 30% it fell 60% by August 2021, it was just returning to break even. So I guess that's an example of it takes more returns to make up for falls.

Bryce: [00:29:44] It's yeah, it's the market. Needs to work a lot harder on the upside. To get back 

Alec: [00:29:49] Okay. This is changing my perception of the product. 

Bryce: [00:29:52] Me too. Yeah. Which I want to get to in a second. So I think it's important to remember dividends because you do get three times the dividend return. So then I did. Okay, Well, that's interesting. Let's now look at the US version, which is just GGUS and I compared that to Spy, which is the SPDR S&P 500. Yeah. 

Alec: [00:30:13] Yep. So again, both of these products are tracking the same group of 500 companies. SPY just tracking them? The 500 companies? GGUS is tracking the 500 companies with leverage. Yeah. There's also a small caveat that there's a currency hedging element as well as a. 

Bryce: [00:30:31] Small caveat there. When you look at the last five years, has made a massive difference. 

Alec: [00:30:35] Oh, really? 

Bryce: [00:30:35] Yeah. Yeah. Like we've missed the fall in the Aussie dollar and the return of that. Like they've hedged out any currency. 

Alec: [00:30:45] Because you would have, you would have benefited. Yeah. Yeah. 

Bryce: [00:30:47] We use all the benefits. 

Alec: [00:30:49] For people who are trying to get their head around that because if you hadn't hedged the Australian dollar as the Australian dollar falls, your investments in US companies would have actually been worth more. Because we price our investments in Aussie dollars, but we buy them in U.S. dollars. And so because the product is hedged rather than getting that free kick as the Aussie dollar falls.

Bryce: [00:31:11] You just your net asset value just or whatever. 

Alec: [00:31:14] Yeah. 

Bryce: [00:31:14] Yeah. It stays the same. 

Alec: [00:31:15] Oh yeah. 

Bryce: [00:31:16] So we've missed all of that. It's slightly irritating but it's the same story with GEAR. However, post COVID GGUS absolutely smoked the S&P 500 on the upside. 

Alec: [00:31:31] Of leverage. 

Bryce: [00:31:32] Because it was leverage. But why more than GEAR then gear did like it short pass.

Alec: [00:31:37] Isn't that because it just went higher though? 

Bryce: [00:31:40] Yeah. It just had so much more momentum behind it and just went bang. So it absolutely smokes the S&P 500. However, it's the same story. Hasn't been able to recover since the fall in 2020 fall. 

Alec: [00:31:54] Well, the apples to apples comparison would have been if there's an S&P 500 ETF in Australia that is currency hedged. 

Bryce: [00:32:03] Yeah, I should look at that. Didn't look at that. Yeah. So the story's the same. So then then this got me to the point of like. Right. Because if you, if you look at that since inception data for GGUS, which is the US one. So yeah, it's outperformed by about 4% and that was since 2015. 

Alec: [00:32:22] Okay. Yeah. So pretty good time to be in the US market. 

Bryce: [00:32:27] Pretty good time to be in the US market. 

Alec: [00:32:29] The takeaway is when the market is trending upwards, it's a good it's good to be in a volatile product when it's trending downwards or it's going sideways, it's not good. 

Bryce: [00:32:40] Yeah. 

Alec: [00:32:41] I mean, since 2015, it's been pretty good in the U.S.. 

Bryce: [00:32:44] Yeah, it is confusing because if you have a look at the returns. So for example, GEAR, the last five years we say is flat, three year is the fund has returned 20%. The index is 11.

Alec: [00:32:58] Yeah, but that's because it would be coming off its COVID lows. So three years would be October 2020 yet. 

Bryce: [00:33:04] Yeah. So anyway, this really got me thinking where to from here for these products? Because the long term theory for the market is that the longer time period you take the like volatility it is like theoretically less if that makes sense, but it's more like you'd probably want to try and do the maths on it somehow with some backtesting in some way to figure out like, are these products actually right for 30 years. 

Alec: [00:33:33] Someone will have done that. Yeah, that's something we could certainly find. 

Bryce: [00:33:36] Because I know. 

Alec: [00:33:37] Why don't you take that as home? 

Bryce: [00:33:38] I'll take that assignment because it's, it's really got me thinking like, yeah, is this right for my portfolio but my gut still. 

Alec: [00:33:46] Yes. Okay. Yeah. I feel like you've buried you might drop moment halfway through this segment which was the five year returns. GEAR was flat. A 200 was up 15% for me like if that.

Bryce: [00:33:59] Yeah but that's five years Like if you take the ten you better on the other side. 

Alec: [00:34:03] All right well I've just had a look at so the Vanguard Australian Shares Index, which tracks the top 200 Australian stocks non leveraged and then gear which tracks it leveraged. I've gone back to when GEAR was first created so early May 2014. GEAR is up 9% in that time, so in almost a decade, up 9%. VAS in that same time period is up 22%. 

Bryce: [00:34:34] Wow. 

Alec: [00:34:37] There you go. Change your perception of leverage products, people. Yeah, Certainly change mine. 

Bryce: [00:34:41] Yeah.

Alec: [00:34:44] Fascinating lot to think about. A lot to think about. All right. 

Bryce: [00:34:48] This story for me here is thank you, Will, for the question, because I wouldn't have gone deep on this had not been not paying for that. So it's definitely changed how I think about it. 

Alec: [00:34:58] Yeah. I mean, the one thing that those returns don't factor in is the leveraged dividends. But still. 

Bryce: [00:35:05] But is dividends going to make up? I don't think it wouldn't make up to 15%. 

Alec: [00:35:07] Yeah. All right. Well, I think this is a good time to take a break as we ponder that. Then on the other side, we're going to have the opposite of that well considered and researched segment that Bryce has just brought us. We're going to be calling the Speccy hot line and speak to Speccy Magee. Oh, yes. Oh, oh, oh, oh, oh, oh, oh, oh, oh. 

Bryce: [00:35:42] It's a rocket ship. 

Alec: [00:35:45] All right. Welcome back to Equity Mates. We have been joined by a special guest in the studio. He's wearing his Halloween costume, a rocket ship. Speccy Magee, thanks for joining us. 

Speccy: [00:36:01] Yes, good to be back. Happy birthday, Bryce. Congratulations on the superior stock of the Year, Alec. 

Alec: [00:36:11] Hank you. Thank you.

Bryce: [00:36:16] To paint a picture of what we're seeing here is speaking. The gay has walked in in a rocket ship emoji costume that has a motor in it to keep it inflated, which is if you can hear that. 

Alec: [00:36:30] Yeah, yeah, yeah.

Bryce: [00:36:32] Oh, is it warm? 

Speccy: [00:36:33] It's actually kind of cosy down. Oh, no. Yeah, I'll send the invoice later. 

Alec: [00:36:39] We'll certainly put some photos of yourself on our socials. So go to Instagram if you want to see. But Speccy, we always like to touch base with you to hear what's coming across your desk at Speccy HQ. You've given us some crackers in the past, some crypto coins, bananas, one that comes to mind and a few Speccy stocks. What's going on in your world? 

Speccy: [00:37:03] Well, it is good to be back. Thanks for calling the Speccy hotline. It's been a while. It's actually been over a year. So yeah,. 

Alec: [00:37:13] It hasn't been a good time for Speccy. 

Speccy: [00:37:15] Well, it's interesting you say that. So I've done a bit of research on past spec image. Okay. Okay. So I've come on the show five times. Nice. Five different pics. Now, before I tell you where the portfolio is at. As a comparison, where do you think the S&P 500 is that if you invested at the dates of those five episodes on average?

Alec: [00:37:38] Oh, good question. 

Speccy: [00:37:40] I can give you the dates if that helps. 

Alec: [00:37:41] Give us the first date

Speccy: [00:37:42] 4th of March 2021. 

Alec: [00:37:46] Okay. So the question is, if we had invested at five points since March 2021 when Speccy came on the show, what would how much would we have been up or down in our portfolio?

Bryce: [00:37:57] Oh, okay. We'd be up.

Alec: [00:38:00] To what are you going to guess how much or. 

Bryce: [00:38:02] By how much we're investing. 

Alec: [00:38:04] It doesn't matter what the percentage is the same amount each time. 

Bryce: [00:38:06] Percentage 4%. 

Speccy: [00:38:08] Up 4%, up 22%. So unless I've done the maths wrong, it's down 1.6%. Oh, really? Yeah, I think well, it's quite tough ish around March 2020 almost or. 

Alec: [00:38:20] August 2021. 

Speccy: [00:38:22] Yeah. Oh, okay. Okay. Anyway, there you go. But I mean, more importantly, where is the Speccy portfolio? If it should be taken For us, it's just playing right. 

Bryce: [00:38:34] Getting a listing. 

Alec: [00:38:35] He's playing on his phone, but he still absolutely smote me in that game, so. All right, well, where would where's the spec portfolio? 

Bryce: [00:38:45] In a rocket ship. 

Alec: [00:38:46] So you got to take me seriously. Okay. So are you going to give us the five picks and then guess what's good? Cool. Okay. Yeah. 

Bryce: [00:38:55] So on that boat.

Alec: [00:38:56] I can't remember. 

Bryce: [00:38:59] The eye candy, but then there was the Wade one was it was there. 

Speccy: [00:39:04] There was a seller network. I don't actually know it, it doesn't sell crypto and then it ran. That was a lot of us know like urethra tract infection drug Uhtred drug. Okay well that's what they made and then finally potty city holding Yeah yeah. 

Alec: [00:39:22] Okay. So if we had invested our money in those rather than the S&P 500, what would our portfolio be looking like? I'm going to say down 50%. 

Bryce: [00:39:34] Yeah, I'm going to have to say there was some okay ones in there, down 31%. 

Alec: [00:39:44] Well, put it this way before Speccy, it gives us the actual answer. I'm pretty sure those two cryptos would be down 80 or 90%. And I'm pretty sure Party City declared bankruptcy.

Bryce: [00:39:55] So down 92%. 

Speccy: [00:39:57] Body City is down 99 points. I think it's de-listed. And so overall we're down yet 79%. 80%. Okay. Okay. So not great. 

Alec: [00:40:08] Better off investing in the S&P 500. Yeah. And with that glowing endorsement of this segment, let's get to what's going across your desk today. Okay. All right. So and just so potty city, okay. I had to look through the PR subreddit. We just we spoke about this last time. Just so they got delisted. Everyone was up in arms on the subreddit. The top comment was worth $2,500. I've ever spent. Lesson learned for a new investor. Never listened to anyone on Reddit. Okay. 

Bryce: [00:40:38] No. 

Alec: [00:40:39] I accept. Roaring Kitty. Right. Everyone with GameStop. Lots of money. So I thought about that and I was like, okay, I've got two years worth of ASX bets content here that I could sift through and find a Speccy right. But then I thought, okay, I'm going to take this guy's advice. I'm not going to find a Speccy on Reddit. I'm going to find another way. So I was listening to the Buy Hold Sell podcast.

Bryce: [00:41:04] Okay, good plug.

Alec: [00:41:06] I said, okay, everyone's talking about a recession. I'm not hearing that. I don't want to hear a recession. I want to hear a risk on sessions. So Adam, doors came on and he's I think his most conspicuous tip was a narrow international three day. So get it on record. This stock is going to the moon, right?

Bryce: [00:41:27] Okay. 

Alec: [00:41:28] So, you know, forget about that. It's not going to the moon. It's going interstellar. 

Bryce: [00:41:33] Okay. 

Alec: [00:41:34] And on that note, I'm going to leave you with one thing. I've asked an interstellar friend to give this stock tip on behalf of Speccy Magee. So here we go. 

Matthew: [00:41:44] All right, all right, All right. Matthew McConaughey here, folks. I've got a piping hot stock tip for you. I'm bringing you this stock tip on behalf of Speccy Magee in the Speccy hotline. Y'all forget what Bryce and Ren say. This Poppy is going to the freaking moon, baby. Mero International is currently trading at $0.26 with a market cap of 100 mil. Amaro billed literal rockets that could literally go to the moon. They're a leader in 3D printing, not that plastic stuff. We're talking boron nitride nanotubes. We're talking lightweight, high strength designs for aerospace, defence, etc. They use cutting edge technologies to produce refractory metals and speciality alloy powders for critical applications. Clients include names like Boeing and Raytheon. Forget about eye candy. Forget about the Nano. Forget about party City. The Speccy Magee geezers will have their vengeance in the form of empire on their titanium powder technology. This is financial advice. Past performance is sometimes an indicator of future performance. Strap yourselves in, folks. This has ten bagger written all over it. We're going interstellar. Dang, nab it. 

Alec: [00:42:52] Speccy Magee 

Bryce: [00:42:57] He's back. He's done it again. 

Alec: [00:42:59] We should be very clear that Matthew McConaughey does not speak for the equity community. This is not ask you, though especially this package does not represent the equity community, but with a clear caveat to do your own research. Thank you, Speccy. We'll speak to you again. 

Bryce: [00:43:18] Ren, we're on that note. It is time to write the episode. 

Alec: [00:43:22] I don't think there's anything that can come after Matthew McConaughey and Speccy Magee. 

Bryce: [00:43:27] On a more serious note, please, we have a $50,000 commitment or a $50,000. 

Alec: [00:43:35] Challenge. 

Bryce: [00:43:35] Challenge to hit. So if you want to see Ren shave his eyebrows, he's sitting there regretting doing that. But if you want to say Ren, shave his eyebrows, then please head to our donation page. Link will be in the show notes. You can follow us on Instagram as we grow our Moz every day, we'll be doing an update and you can also donate through the link in our Instagram page. But as always, Ren, it's been an absolute pleasure chatting. Stocks, we've got through a lot today. Again, if you'd like to submit a question, hit us up it ask@equitymates.com, but we'll pick it up next week. 

Alec: [00:44:11] Sounds good.