‘For illustrative purposes only’
DIY Investor Magazine
/
2015 Issue
14
Comparing our three investments
FTSE 100 ETF
IT10 GEARED DOWN
£100.00
£500.00
-£500.00
£1,000.00
-£1,000.00
-£1,500.00
-£2,000.00
-£100.00
-£100.10
-£812.50
-£215.38
RISES 5% (6,825)
FALLS 5% (6,175)
HITS KNOCK OUT (5,800)
-£215.60
-£1,750.00
£100.00
£812.50
IT10 GEARED UP
The chart above shows what would happen to
our 3 investments under the same conditions
that we tested IT10 earlier from a starting index
level of 6,500.
We can see that if the Index rose 5% to 6,825
our FTSE 100 Index and our Geared Down
investment return approximately the same. Our
Geared up position however rises more than 8
times further.
However, look at the situation where the FTSE
100 Index falls 5% to 6,175.00. Again, the
Geared Down exposure all but matches the ETF.
The Geared up position though multiplies the
loss more than 8 times.
The big difference happens if the FTSE 100 hits
5,800.00. Here our ETF is down £215.38 but you
still own it, and it could recover, whereas both
IT10 positions are knocked out, the Geared Up
position losing £1,750 of our initial £2,000.
CHOOSING AN INFINITE TURBO
In this article we have kept it simple and only
used one example product, IT10. In reality there
would be a lot more choice. Firstly you can trade
more than just the FTSE 100 Index, and you can
go short in expectation of a fall, as well as the
long examples we have seen.
But, for each underlying asset there will be a
number of different products with different Finance
Levels, different Knock Out Levels and therefore
different levels of gearing, typically between 3 and
15 times. This means that you can find a product
to suit your view.
WHAT COSTS AND FEES ARE INVOLVED?
Like our mortgage example at the start, an interest
rate equivalent to approximately 1.5% to 2.6% per
year is pro-rated and deducted from the price of
an Infinite Turbo each day.
£-
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