A geared ETF borrows money inside the fund to buy more shares, typically giving 1.5 to 2.5 times the market's moves. You cannot get a margin call or lose more than you invest, but you can lose most of it: at 2 times gearing, a 30% market fall becomes roughly a 60% loss. Costs and "volatility decay" also eat into returns. Over the year to 30 September 2026 GEAR lost 1.2% while the unleveraged A200 gained 2.9%, and over five years LNAS returned less than plain NDQ.
How the borrowing works
With a normal ETF, $10,000 buys $10,000 of shares. A geared ETF takes your $10,000, borrows more money at the fund level, and buys a bigger parcel of shares. This is called internal gearing: the fund holds the loan, not you.
The key number is the gearing ratio, the loan as a share of the fund's total assets. A 50% gearing ratio means half the fund is borrowed money, so every $1 you invest controls $2 of shares.
How the gearing ratio sets your exposure
Two features make internal gearing different from a margin loan:
- No margin calls. The fund manages the loan and rebalances when the gearing drifts outside its range. You are never asked to top up.
- Losses are capped at what you invest. That sounds reassuring, but it only means you cannot lose more than 100%. You can still lose most of your money.
Risk 1: losses are magnified too
Gearing works the same way in both directions. If the market rises 10%, a 2 times geared fund rises about 20% before costs. If the market falls 30%, the fund falls about 60%.
What a market fall does to a 2x geared fund
The recovery maths is brutal. After a 60% loss you need a 150% gain just to get back to where you started. Share markets fell more than 30% as recently as the COVID crash of 2020 and the global financial crisis of 2008.
Risk 2: volatility decay
This is the effect that surprises most people. When markets bounce up and down, a geared fund loses ground even if the market ends where it started.
Take a market that rises 10% and then falls 10%. A normal ETF ends at $99 for every $100. A fund held at 2 times exposure rises 20% then falls 20%, ending at $96. At 3 times it ends at $91. The more volatile the market and the more often the fund resets its gearing, the bigger the drag.
Up 10%, then down 10%: where $100 ends up
Risk 3: costs you do not see in the fee
- Higher fees. GEAR and GGUS charge 0.80% a year and LNAS 1.00%, against 0.04% for A200. The newer Wealthbuilder funds such as GHHF charge 0.35%.
- Interest on the loan. The fund pays interest on what it borrows, and that comes out of returns, not the stated fee. When interest rates are high, it is a heavy drag.
- Trading costs. Rebalancing the loan means buying and selling shares more often.
What actually happened: geared vs normal
The real numbers show all three effects. Each geared fund below is compared with a normal ETF tracking a similar market.
| Geared ETF | Compared with | 1 year | 3 years | 5 years | Fee |
|---|---|---|---|---|---|
| GEAR (Australian shares) | A200 | −1.2% / +2.9% | +60.7% / +36.8% | +49.7% / +39.9% | 0.80% / 0.04% |
| GGUS (US shares, hedged) | IHVV | +28.1% / +15.4% | +160.5% / +77.0% | +89.5% / +67.6% | 0.80% / 0.10% |
| LNAS (Nasdaq 100) | NDQ | +37.4% / +16.6% | +187.5% / +89.5% | +81.4% / +104.1% | 1.00% / 0.48% |
| G200 (Australian shares) | A200 | +1.5% / +2.9% | n/a | n/a | 0.35% / 0.04% |
| GHHF (diversified) | DHHF | +12.0% / +8.1% | n/a | n/a | 0.35% / 0.19% |
Cumulative total returns to 30 September 2026 (geared / normal). Source: TMX Australia monthly funds report.
Geared minus normal, in percentage points
- GEAR carries roughly twice the market exposure, yet over five years it beat A200 by only about 10 points, or 8.4% a year against 6.9%. Over the last year, a modest rise in the market turned into a loss.
- GGUS did well during a strong US bull run over three years, but its five-year lead is much smaller because it includes the 2022 sell-off.
- LNAS roughly doubled NDQ's three-year return, yet over five years it returned less than the unleveraged fund. That is volatility decay and costs at work.
Inverse funds: the same risks in reverse
"Bear" or short funds rise when the market falls. Geared versions such as BBOZ, BBUS and SNAS suffer the same decay, and because markets tend to rise over time, holding them for long has been very costly. Over five years to 30 September 2026, BBOZ lost 48.3%, BBUS lost 66.6% and SNAS lost 87.5%. They are trading tools, not investments. See the short and inverse ETFs page and GEAR vs BBOZ.
What $10,000 in an inverse ETF became
Who should think twice
Geared ETFs are high-risk products. They are hardest to justify for investors who:
- Are near or in retirement. A 50 to 60% fall just before or after you stop work can permanently shrink the income your savings can support, because you may have to sell at the bottom.
- Need the money within five to ten years. There may not be time to recover from a deep fall.
- Would sell in a panic. Geared funds punish selling after a crash more than any other ETF.
- Do not monitor their holdings. These products need regular attention.
Some experienced investors with a long time horizon, steady income and a high tolerance for losses use a small geared position deliberately, or use a lower-geared fund like GHHF in place of a margin loan. Even then, it is worth understanding that the long-run results above are far less impressive than the best years suggest. See DHHF vs GHHF, our VDHG vs DHHF vs GHHF guide, and the full list on the leveraged and geared ETFs page.
Compare geared and normal ETFs side by side →
Common questions
Can you lose more than you invest in a geared ETF?
No. With an internally geared ETF the fund holds the loan, so there are no margin calls and your loss is limited to what you put in. But a 2 times geared fund falls about twice as far as the market, so a large crash can wipe out most of your investment.
What is volatility decay?
It is the loss a geared fund suffers in up-and-down markets. If the market rises 10% then falls 10%, a normal ETF ends down 1%, but a fund held at 2 times exposure ends down 4%. Over time this can leave a geared fund behind even when the market rises.
Is GEAR a good long-term investment?
GEAR returned +49.7% over five years to 30 September 2026, against +39.9% for unleveraged A200, despite roughly double the market exposure. In the past year it lost 1.2% while A200 rose 2.9%. It carries much higher risk, a 0.80% fee and interest costs.
What is the difference between GHHF and GEAR?
GHHF is a diversified global and Australian fund with lower gearing, around 30% to 40%, and a 0.35% fee. GEAR holds only large Australian shares with gearing of around 50% to 65% and a 0.80% fee, so it is considerably more volatile.
Joshua Stega is a financial adviser with 20 years' experience and the founder of ETF Adviser. He built ReviewETF to make every Australian ETF easy to find and compare.
General information only. It does not take into account your objectives, financial situation or needs. Consider the PDS and TMD before investing. Past performance is not a reliable indicator of future performance. Data as at 30 September 2026.