Should I Buy BBOZ, BBOZ Share price, BBOZ

BBOZ offers a unique tool for Australian investing experts to gain an inverse or short exposure to the ASX 200. BBOZ brings a lot of unique risks and considerations. Should I Buy BBOZ ETF?

Should I Buy BBOZ ETF: Pros and Cons

The Good

  • An Efficient hedging strategy that’s easily employed
  • Can be used to hedge a portfolio and avoid consolidating capital gains
  • No Margin calls

The Bad

  • Extremely Risky For inexperienced Investors
  • Relatively High Fees
  • Inefficient tracking over longer periods

Who Should Buy BBOZ ETF?

BBOZ is used by sophisticated investors as an instrument to hedge and profit from Australian share market downturns. A 1% fall in the ASX 200 on a given day can generally be expected to deliver a 2% to 2.75% increase in the value of the Fund (and vice versa).

The BetaShares Australian Equities Strong Bear Hedge Fund (ASX: BBOZ) provides a simple way to generate magnified returns that are negatively correlated to the Australian sharemarket.

The fund is geared to deliver a short interest of -200% to -275% on a given day. Over the long term, short exposure may fall outside these brackets due to rebalancing and compounding.

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Uses for BBOZ:

  • Hedge a portfolio of Australian equities against a decline in the ASX 200
  • Access the potential for leveraged returns if the ASX 200 falls

Given the historic returns of the Australian share market and the nature of geared shorting used in BBOZ, the fund is often not suitable over long-term periods.

Gearing magnifies gains and losses and may not be a suitable strategy for all investors. 

Ensure to read and understand the PDS and discuss with an investment professional.

Should I Buy BBOZ ETF: Facts

Should I Buy BBOZ, BBOZ Share price, BBOZ
Ticker CodeBBOZ
Fund NameBetaShares Australian Equities Strong Bear Hedge Fund
BenchmarkNegative Geared Correlation to S&P/ASX 200 Accumulation Index
Number of Holdings2*
Assets Under Management$290 million
Management Costs1.38%
Portfolio Turnover
Inception Date17 April 2015
Income DistributionsAnnual
Distribution Reinvestment PlanNo
Total 3-Year Returns-31.11%

*The fund holds 2 holdings currently: Including AUD, and ASX 200 Futures

BBOZ ETF Share Price

About BBOZ ETF ASX

BBOZ is the largest ASX-listed Bear-hedge fund with around $290 Million dollars in assets under management and an average volume of around $9 Million per day. The fund was started in 2015, given the incredible bull run of the ASX 200, BBOZ unsurprisingly has poor performance over the time period.

However, BBOZ isn’t designed for long-term holders but acts as a hedge fund and an instrument to bet against the ASX 200, usually over a short-term period. We tend to see spikes in volumes to BBOZ related to share market volatility and rises in the VIX.

BBOZ targets a return that is negatively correlated to the return of the Australian share market. BBOZ seeks to generate magnified returns: specifically a relationship of between -200% and -275% on a given day.

Should I Buy BBOZ, BBOZ Share price, BBOZ

BBOZ Share Registry: Link Market Services. Through Link, you can manage your holdings and communications.

BBOZ is domiciled in Australia meaning it is a registered fund in Australia for tax purposes.

BBOZ Portfolio Goal

BBOZ seeks to generate magnified returns that are negatively correlated to the returns of the Australian share market. The Fund expects to generate a magnified positive return when the S&P/ASX 200 Accumulation Index falls (and a magnified negative return when the index rises). Source, BetaShares

How Does BBOZ ETF Work?

BBOZ seeks to generate magnified returns that are negatively correlated to the ASX 200 index, specifically a relationship of between -200% and -275% on a given day.

The fund achieves this by selling share index futures contracts in the S&P/ASX 200. The exact instrument used is the SPI 200 Futures. As a result, the fund may not be exactly proportional to the ASX 200 index but will be proportional to futures. These should show a similar trend.

Typically, equity index futures prices and the relevant sharemarket index move in parallel, and so in the hours when the sharemarket is open, price movements in the Bear Funds will reflect movements in the physical sharemarket.

It is important to remember that BBOZ operates using Future contracts, not the ASX 200 itself. Futures markets are contantly open. As such, returns may not always be reflective of the ASX 200.

The fund is able to achieve a geared short position of -200% and -275% by trading on margin. This is used to amplify gains and losses.

If the Fund maintained a short position equal to 275% of the Fund’s Net Asset Value (being the maximum anticipated gross short exposure the Fund will adopt), then a 10%
fall (or rise) in the ASX 200 on a given day could translate into a 27.5% rise (or fall) in the value of the Fund.

Here’s an example in practice:

Should I Buy BBOZ, BBOZ Share price, BBOZ
Source: BBOZ PDS

The level of margin is reviewed daily by the fund to ensure it is within the limit. In order to maintain this, the fund will be frequently rebalanced. For shareholders, over time the individual gearing of the fund will fall outside of the range. It may only be within the range on a given day.

What are Futures? Futures are derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price. Here, the buyer must purchase or the seller must sell the underlying asset at the set price, regardless of the current market price at the expiration date. Source, Investopedia

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By selling futures contracts, BBOZ agrees to sell the underlying assets of the ASX 200 at a given price by the future date. If the ASX 200 falls in value, BBOZ is set to gain. On the expiration date, the futures contract can be settled in cash.

Can I lose more than my initial investment when investing in the Bear Fund series?
No. An investor in the BetaShares Bear Fund series cannot lose more than their initial investment.

BBOZ Benchmark Index: Geared Inverse ASX 200 Accumulation Index

BBOZ operates by selling futures contracts in the S&P/ASX 200. Doing so is effectively a form of shorting the ASX 200 index, allowing investors to hedge or bet against the Australian share market. The accumulation index is an extension of the ASX 200 that further accounts for the dividends/distributions paid out by the index, effectively tracking the actual returns for the ASX 200.

The ASX 200 acts as the key benchmark for the Australian share market allowing us to track Australian equity performance.

The S&P/ASX 200 is recognized as the institutional investable benchmark in Australia. The S&P/ASX 200 is designed to measure the performance of the 200 largest index-eligible stocks listed on the ASX by float-adjusted market capitalization. Representative, liquid, and tradable, it is widely considered Australia’s preeminent benchmark index. Source, S&P

ASX 200 Information:

Ticker XJO
No. Constituents200
Weighted MethodFloat-Adjusted Market Cap Weighted
RebalancingQuarterly: March, June, September, December
Calculation FrequencyReal Time
Launch DateApril 3 2000
First Value DateMarch 31 2000

ASX 200 Holdings

The ASX 200 is heavily weighted towards the financials and materials sector. This shouldn’t be surprising, with six of the ten top holdings falling into these two sectors. Of the entire index, 29.9% is weighted towards financials and 19.3% towards materials.

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Information technology is a sector that is severely underrepresented within the Australian share market. These companies only account for 4.4% of the index. In comparison, the US S&P 500 is weighted heavily towards the technology sector. Information Technology accounts for 27.8% of its holdings.

ASX 200 Fundamentals

  • PE (Trailing): 27.27
  • PE (Projected): 17.12
  • P/B: 2.12
  • Indicated Dividend Yield: 3.32%
  • P/Sales: 2.51
  • P/Cash Flow: 12.72
  • Mean Total Market Cap: $11.445 Billion
  • Largest Constituent Weight: 8.4%

Top 10 ASX 200 holdings

  1. Commonwealth Bank of Australia (8.61%)
  2. CSL Ltd. (6.38%)
  3. BHP Group Ltd. (5.27%)
  4. Westpac Banking Corp. (4.52%)
  5. National Australia Bank Ltd. (4.37%)
  6. Australia & New Zealand Banking Group Ltd. (3.79%)
  7. Wesfarmers Ltd. (3.01%)
  8. Macquarie Group Ltd. (2.97%)
  9. Woolworths Group Ltd. (2.38%)
  10. Tesltra Corporation. (2.25%)

BBOZ Holdings

  • Cash and Cash Equivalents: 85% or more of the Fund’s net asset value
  • Exchange-traded derivatives (being ASX SPI 200 futures contracts): 15% or less of the Fund’s net asset value

BBOZ invests its assets into cash and cash equivalents, namely AUD, as well as selling equity index futures contracts in the ASX 200. Selling ASX 200 futures can generally, be expected to generate a positive return when the ASX 200 index declines on a given day (and a negative return when the ASX 200 index increases).

Selling futures contracts in the way described above is a form of short selling. Since all of the futures tradings is done within the Fund, investors are not exposed to the requirement to pay “margin calls” in the event that the futures positions incur losses.

Gearing

BBOZ does not borrow funds in order to achieve leverage. Instead, gearing is achieved through future contracts which require minimal principle in order to invest. Gearing allows the magnification of both gains and losses.

BBOZ aims to maintain the Fund’s short exposure to the ASX 200 index between 200% and 275% of the Fund’s Net Asset Value on a given day.

BBOZ ETF Fees

  • BBOZ Management Fee: 1.19% p.a
  • Expenses (Capped at): 0.19% p.a
  • Indirect Costs: 0%
  • Bid/Ask Spread: N/A

How are Management Fees Paid?

Management fees are automatically calculated and accrued on the fund’s Net Asset Value on a daily basis. This means is you as an investor never have to directly send money to BetaShares. It is all processed by the fund as they deduct the fees from the underlying earnings/capital of the fund on or after the first day of the following month.

Because of this you never really notice the fees, instead, it just reduces the fund’s performance over time. When the fund sends out their AMMA statement at tax time you can see the full details of this.

BBOZ Recoverable Expenses

BBOZ charges recoverable expenses capped at 0.19% p.a. These expenses represent the additional operating expenses associated with running the fund. These funds are calculated and paid just like the management fees.

Since the expenses are capped at 0.19%, the fund may sometimes incur a fee greater than this amount which will be paid out at a later date to maintain the 0.19% cap. This is what the term 'Recoverable' refers to.

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Bid-Ask Spreads

The bid-ask spread is the difference in price between the highest price that a buyer is willing to pay for a security and the lowest price for which a seller is willing to sell it. We have no current data on the average bid-ask spread of the fund. This can be seen in real-time through your broker when trading the fund.

  • The narrower the spread the better, as this reduces the trading costs associated with buying and selling ETFs
  • Exchange-based spreads, as on the ASX, are set by the competitive tensions between market markers
  • Larger Funds will tend to have lower bid-ask spreads.
  • Bid-Ask spreads are not set but constantly change throughout the day, depending on supply and demand.

Fee Comparison

Ticker CodeBBOZBBUSBEARSNASVAS
AUM$274M$197M$59M$B$9B
Mgmt Costs1.38%1.38%1.38%1%0.10%
Indirect Fees-
Average Bid/Ask Spread????0%
Total Fees>1.38%>1.38%>1.38%>1%0.12%

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Should I Buy BBOZ, BBOZ Share price, BBOZ
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BBOZ ETF Share Price: Performance

In the below table we set out the returns of BBOZ compared to the ASX 200 Index over various time frames.

We have also compared the performance of BBOZ to several other popular ETFs. They are expressed as average returns per annum.

Fund1 year3 years5 yearsInception
BBOZ-47.79%-31.11%-28.18%-23.31%
ASX 20028.91%10.03%11.02%-
VAS28.78%10.08%10.16%9.59%
BBUS-51.26%-39.71%-37.20%-36.79%
SPY32.55%17.49%18.51%10.06%
BEAR-24%-12.17%-11.36%-10.16%
Should I Buy BBOZ, BBOZ Share price, BBOZ

We can see the inverse relation evident between the ASX 200 and BBOZ. Notably, we see excellent returns realized over the COVID crash. But as the bull market recommended BBOZ lost a significant amount of value.

Should I Buy BBOZ: Competitors

Asides from 'ETF Securities', BetaShares is the only ASX provider of inverse ETF funds. In total there are four inverse hedge funds listed on the ASX:

BBOZ: BetaShares Australian Equities Strong Bear Hedge Fund is the ASX equivalent to BBUS. This fund operates by selling ASX 200 futures on margin. The management fees are the same price as BBUS.

BBUS: The BetaShares U.S. Equities Strong Bear Hedge Fund – Currency Hedged (ASX: BBUS) provides a simple way to generate magnified returns that are negatively correlated to the U.S. sharemarket.

BEAR: BetaShares Australian Equities Bear Hedge Fund (BEAR) is similar to BBOZ as the fund also operates by selling ASX 200 futures on margin. Bear is geared less at a range of -90% to -110%. The management fees are also 1.38%.

SNAS: ETFS Ultra Short Nasdaq 100 Hedge Fund is a trading product offering negatively geared exposure to the Nasdaq-100 Index. SNAS provides exposure to the Nasdaq-100 Index within a target range of -200% and -275%. The management fee is 1%.

Other popular ETFs include: IVVVDHGVAS

BBOZ Distributions

Since BBOZ is a fund that operates as a trust structure the fund will pay out any excess capital on an annual basis. BBOZ operates by selling ASX 200 futures, as such the fund won't derive any capital from dividends. Since BBOZ does hold cash, interest may be accumulated.

  • BBOZ Distibution History: BBOZ has paid out one distribution in 2015 at a price of $2.41389 per unit.
  • BBOZ Payment Frequency: Annually
  • BBOZ Yield: N/A
Ex DateRecord DatePayment DateDistribution Unit ($)
1-Jul-153-Jul-1520-Jul-15$2.41389

Should I Buy BBOZ ETF: Prophet's Take

BBOZ is not used as a long-term investment strategy but is instead employed by sophisticated investors as a specialized investing tool.

BBOZ is used to:

  • Hedge a portfolio of Australian equities against a decline in the ASX 200
  • Access the potential for leveraged returns if the ASX 200 falls

Short and leveraged exchange-traded products are only intended for investors who understand the risks involved in investing in a product with short and/or leveraged exposure and who intend to invest on a short-term basis. Any investment in short and/or leveraged products should be actively managed and very closely monitored, as frequently as daily.

Before making any investment in either Fund, prospective investors should carefully consider whether they are prepared to be exposed to significant losses on their investment.

Ensure to read and understand the PDS and discuss with an investment professional. No information discussed by Prophet Invest is Financial advice. Prophet Invest provides factual information only.

BBOZ Factsheet

Should I Buy BBOZ, BBOZ Share price, BBOZ

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