Gearing: Choosing managed funds to do the work

Geared share funds sound attractive but they are ridden with flaws.

Summary: Geared managed funds do the hard work of borrowing money and managing an investment portfolio for you. Geared funds often outperform when the market is strong and underperform when it is weak. But using this method means giving away a lot of tax control and index hugging is also a concern.

Key take-out: Geared Australian share funds might be particularly appealing to aggressive investors comfortable with extra volatility, or superannuation investors who are bullish on the share market.

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