Shorting the ASX 200 – BetaShares Bear Fund

posted on July 11th, 2012 by Bellmont Research Team

The BetaShares Bear Fund is the first managed fund in Australia that provides investors with a simple way to hedge against, or profit from, a decline in the Australian equities market. The Fund seeks to generate returns that are negatively correlated to the returns of the Australian share market (as measured by the S&P/ASX 200 Index). More simply, the product is expected to go up when the Australian share market goes down.

Therefore, the introduction of the Bear Fund allows investors to buy a fund that provides “short” exposure to the market

Exchange Traded Investment

Because the Fund is traded on the ASX, investors can now access short exposure as simply as buying any share. Investors have the ability to buy & sell units in the Fund throughout the trading day simply by trading in the stock code BEAR.

The Fund also benefits from a high level of transparency, with daily information about the Fund’s portfolio available on the BetaShares website, along with an indicative Net Asset Value per unit (“iNAV”) that is updated throughout the trading day.

Product Structure

The Bear Fund is a conventional managed fund (i.e unit trust) that trades on the ASX, and it employs a simple structure to implement the investment strategy.

The Fund invests all of its assets in cash and cash equivalents and sells equity index futures contracts (being the ASX SPI 200 Futures). Selling futures can be expected to generate a positive return for the Fund when the S&P ASX 200 Index declines (and the reverse when the S&P ASX 200 Index increases).

All assets of the Fund (other than relatively small amounts of cash held as collateral for futures positions) are held by a third party custodian in a segregated account for the benefit of the Fund’s unitholders. The Fund employs no borrowing and will not use any instrument (including derivatives) for the purpose of leveraging returns.

Use of BetaShares Bear Fund

The Fund is a flexible tool that can be used to implement a number of investment strategies such as;

  • Seek profits when markets decline
  • Hedge portfolios against falling markets
  • Alternative to using futures, swaps, or other derivatives – easier to trade and administer
  • Pairs Trading – for example going long the Fund and long an individual stock to reduce the impact of market movements on a stock’s performance
  • In anticipation of short-term equity market declines, buy the Fund instead of selling and buying back core equity positions later (which would crystallize capital gains)

Frequently Asked Questions: BetaShares Bear Fund

Is the Bear Fund an ETF?

No – the Fund is a conventional managed fund that is available for trading on the ASX.

Investing in the Bear Fund may buy and sell units in the Fund throughout the trading day, and benefit from high levels of portfolio transparency.

If the market goes down 10% in a year, will the performance of the Fund be +10% (excluding fees)?

No. The Fund’s objective is to produce positive results when the market declines (and negative results when the market rises) and the Fund aims to return as much of the relevant market upside or downside as possible (without the use of leverage). However, the Fund should not be expected to provide the exact opposite of the market return over any time period.

What does the Bear Fund invest in?

The Fund invests substantially all of its assets in cash and cash equivalents, and obtains its exposure by selling ASX SPI 200 futures contracts. Selling ASX SPI 200 futures can be expected to generate a positive return when the S&P/ASX 200 index falls.

Is the Bear Fund a “buy & hold” product?

Investors can hold the Bear Fund for as long as it continues to meet their investment objectives. Investors should check the suitability of their holdings regularly, just as they should with any short position in the market.

Who is the Bear Fund suitable for?

This product may be suitable for anyone who wants to profit from, or protect against, a declining equities market. Of Course investors in the Fund need to understand that, while the product is expected to rise when markets go down, it is also expected to fall in value when markets rise. Investors should consider their circumstances and the PDS and obtain professional financial advice before making any investment decision.

What is the Fund’s “Portfolio Exposure”?

/ How should I expect the Fund to perform from day to day?

The Bear Fund’s “portfolio exposure” is displayed on the Betashares website and updated daily. It represents the approximate exposure that the Fund will have, on any given day, to movements in the S&P/ASX 200 Index, as measured by the relevant futures contracts held in the Fund. As a practical example, if the portfolio exposure of the Fund is -102% on a given day, and the S&P/ASX 200 Index goes down 1% that day, the Bear Fund would be expected to go up approximately 1.02% that day, before fees and expenses.

Is there counterparty risk?

Substantially all of the assets of the Fund are held in cash and cash equivalents and the Fund’s “short” exposure is obtained only through the use of exchange traded futures. The counterparty to all exchange traded futures is the ASX clearing house – a subsidiary of ASX – whose rules require participants to post daily cash margins.


All information provided by BetaShares.

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