Leveraged Investing and Funds - The Definitive New Zealand Guide

Our guide explains how leveraged funds work, the risks and rewards of geared investing, and lists the leveraged fund options available to New Zealand investors

Updated 31 January 2026

Summary

Leveraged funds, also known as geared funds, use borrowed money to amplify investment returns. For every dollar you invest, the fund borrows additional capital to increase your market exposure. This means when markets rise, your returns are magnified. However, when markets fall, your losses are equally amplified.
Leveraged funds represent the highest-risk, highest-potential-reward option available to investors, although the leveraged fund options are limited but growing.
Booster offers the most prominent options, including the Booster Geared Growth Fund available through its KiwiSaver scheme and the Booster Wealth Series for non-KiwiSaver investors.
These funds appeal to investors with long timeframes (15+ years), strong risk tolerance, and a clear understanding of how leverage works.

Know This First: Leveraged Funds Explained

Leveraged funds borrow money to increase your market exposure beyond what you actually invest. A fund with 1.35x leverage invests $1.35 for every $1.00 you contribute. Returns are amplified in both directions – if the market rises 10%, a 1.35x leveraged fund might gain around 13.5%, but if the market falls 10%, you might lose around 13.5%.
Leverage involves borrowing costs – the fund pays interest on borrowed money, which reduces returns and means the fund needs positive performance just to break even. Leveraged funds are designed for very long-term investors (15+ years minimum) who can withstand significant short-term volatility.
In New Zealand, Booster is the primary provider of leveraged funds. Our view is that leveraged funds are unlikely to be suitable for conservative investors, those nearing retirement, or anyone who cannot afford to lose a substantial portion of their investment.

To help explain what's on offer and what the risks are, our guide covers:

Important Disclaimer: MoneyHub provides this guide for informational purposes only. It does not constitute personal financial advice or a recommendation to buy any financial product. Leveraged funds carry significantly higher risk than standard investment funds. The value of your investment can go down as well as up, and you may lose a substantial portion of your original investment. Past performance is not a reliable indicator of future results.

What Leveraged Funds Are and How They Work

A leveraged fund operates on a simple principle – borrow money to invest more than you actually have. By doing so, the fund magnifies your exposure to market movements, creating the potential for higher returns but also larger losses.

A simple example:

Imagine you have $10,000 to invest. In a standard fund, your $10,000 buys $10,000 worth of shares. If those shares rise 10%, you gain $1,000 for a total of $11,000.
In a leveraged fund with 1.35x gearing, the fund borrows an additional $3,500 for every $10,000 you invest. Your $10,000 now controls $13,500 worth of shares. If those shares rise 10%, the portfolio gains $1,350. After accounting for borrowing costs, your return might be around 12-13% instead of 10%.
The same principle works in reverse. If shares fall 10%, your leveraged portfolio loses $1,350 plus borrowing costs, potentially resulting in a 14-15% loss on your original $10,000.

Leverage ratios explained:

1.0x leverage means no borrowing – standard fund exposure where $10,000 invested equals $10,000 market exposure. 1.35x leverage (Booster’s typical ratio with its Geared Growth funds) means for every $1 invested, the fund has $1.35 exposure, so $10,000 invested equals $13,500 market exposure. Higher leverage ratios of 2x or 3x are common in some overseas ETFs but are not available through New Zealand fund managers.

Understanding Borrowing Costs

Leverage is not free – the fund must pay interest on the borrowed money, which creates a drag on returns. In flat markets, a leveraged fund will underperform an unleveraged fund due to interest costs. The fund needs to generate positive returns just to cover borrowing costs and break even. When interest rates are high, the cost of leverage increases, making it harder for the fund to outperform.
For example, Booster’s Geared Growth Fund has estimated total costs of around 3% per annum when including management fees and interest on borrowed funds. This means the underlying investments need to return more than 3% annually just to break even.

The Mathematics of Leverage - Amplified Gains and Losses

Understanding how leverage affects returns in different scenarios is essential before investing. With 1.35x leverage and assuming approximately 3% annual borrowing costs, a 30% market gain might translate to roughly 37% for the leveraged fund, while a 30% market loss might result in approximately 44% loss for the leveraged fund. Understanding how this works is essential before considering any investment in a leveraged fund or ETF.

The Long-Term Case for Leverage

Despite the amplified downside risk, there is a rational case for leverage over very long time periods. Historically, share markets have delivered positive returns over most 10-year periods and nearly all 20-year periods.
If you believe markets will continue to trend upward over the long term, leverage allows you to capture more of that upside.
For young investors with decades until retirement, short-term volatility matters far less than long-term wealth accumulation.
However, this case depends entirely on markets continuing to deliver positive long-term returns and requires the discipline and financial stability to stay invested through severe downturns.

The Volatility Drag Problem

Leveraged funds face an additional challenge known as volatility drag. In choppy markets that move up and down without a clear trend, leverage can erode returns even if the market ends up roughly flat.
Consider this simplified example: In Period 1, the market rises 20% and a standard fund of $10,000 becomes $12,000, while a 1.35x leveraged fund becomes approximately $12,700. In Period 2, the market falls 20% and the standard fund becomes $9,600, while the leveraged fund becomes approximately $9,270. The standard fund lost 4% overall, but the leveraged fund lost approximately 7.3%. This volatility drag means leveraged funds work best in steadily rising markets.

Who Should (and Should Not) Consider Leveraged Funds

Leveraged funds are not appropriate for most investors. Before considering these products, honestly assess whether you meet the following criteria.

Leveraged funds may suit you if:

You have a minimum investment timeframe of 15 years or longer, giving you time to recover from even severe market downturns.
You have a high tolerance for volatility and can watch your portfolio drop 30%, 40%, or even 50% during market crashes without panicking and selling.
You have stable income and will not need to access these funds during market downturns.
You have other savings and investments as a financial buffer.
You understand how leverage works and accept that you could lose more money than with a standard fund.

Leveraged funds are arguably not suitable if:

You are within 10-15 years of retirement or needing the funds.
You have a conservative risk profile or would lose sleep over significant paper/unrealised losses.
You might need to access the funds in an emergency.
You do not have other investments or savings.
You are attracted to leverage because you want to get rich quick.
You do not fully understand how leverage works.

Leveraged Fund and ETF Options Available to New Zealand Investors

New Zealand has limited but growing options for investors seeking leveraged exposure. Booster is the primary provider, offering leveraged funds through both KiwiSaver and their Wealth Series platform.

1. Booster Wealth Geared Growth Fund - New Zealand's First PIE Leveraged Fund

Launched in March 2025, the Booster Wealth Geared Growth Fund marks a first for New Zealand investors as the country's first domestically managed leveraged fund structured as a Portfolio Investment Entity (PIE). The fund forms part of Booster's Wealth Series and uses internal gearing - borrowing money against the portfolio - to amplify returns.

Unlike daily-reset leveraged ETFs common in the US (outlined below), the Booster fund maintains a more stable gearing ratio managed between 0-50% of the fund's value, with a typical target of around 35%.

Fund Overview - Features and Details:

Management Fee: 1.34% p.a. (includes 0.39% gearing costs)
Total Estimated Costs: ~3.09% p.a. (including interest costs)
Target Gearing Ratio: ~35% (borrows 35c for every $1 invested)
Return Amplification: ~1.35x (10% market gain = 13.5% fund return)
Risk Indicator: 5/7
Recommended Timeframe: 15+ years
Fund Structure: PIE (tax capped at 28%)

Investment Mix
The fund targets a growth-oriented allocation of 99% growth assets:

60% International equities
29% Australasian equities
5% Listed property
5% Unlisted property
1% Cash and cash equivalents

Key Considerations
Advantages:

PIE structure caps tax at 28% regardless of income - significant benefit for high earners
No FIF calculations or complex tax returns required
Responsible investing criteria applied - excludes tobacco, gambling, armaments, nuclear, fossil fuels
Stable gearing ratio avoids daily reset volatility decay
Professionally managed diversified portfolio

What to be aware of:

High total costs (~3.09% p.a.) compared to unleveraged alternatives
Interest costs hurt returns in flat or declining markets

More details: Booster's Wealth Series Funds

2. Booster Geared Growth Fund and Booster Socially Responsible Geared Growth Fund (KiwiSaver Options)

The Booster Geared Growth Funds are New Zealand’s only leveraged KiwiSaver options, making them unique in the market. For investors who believe in the long-term case for leverage and have decades until retirement, both funds provide a way to amplify KiwiSaver returns. Our guide to Booster's KiwiSaver Scheme explains more.

KiwiSaver Geared Growth Fund overview: The fund has a leverage ratio of approximately 1.35x, meaning $1 invested gives roughly $1.35 market exposure. The management fee is approximately 1.15% per year plus borrowing costs embedded in returns. The fund is structured as a PIE and has a risk level of 5 and the recommended minimum investment timeframe is 10+ years.

Both funds invest primarily in growth assets including New Zealand shares, Australian shares, international shares across developed markets, and listed property. Booster manages the leverage level, adjusting it based on market conditions and risk management considerations.

Who these funds may suit: Young investors (ideally under 45) with 20+ years until retirement, those who already maximise their KiwiSaver contributions and employer matching, investors who understand and accept the amplified volatility, and people with stable employment who will not need to access KiwiSaver early.

More details: Booster's KiwiSaver Scheme

3. US-Listed Leveraged ETFs - TQQQ and UPRO

US-listed leveraged ETFs like TQQQ (3x Nasdaq) or UPRO (3x S&P 500) can be accessed through international brokers such as Tiger Brokers, Sharesies, Hatch and Stake. However, these products use daily leverage resets, which creates severe volatility drag over time. They are arguably designed for short-term trading, not long-term investing, and most financial professionals do not recommend these for buy-and-hold investors.

If you access US-listed leveraged ETFs, different tax rules apply compared to investing in leveraged PIE funds. Holdings under $50,000 are taxed on dividends received at your marginal tax rate. Holdings over $50,000 trigger FIF (Foreign Investment Fund) rules - our guide to tax on investments explains more.

Risks and Downsides of Leveraged Investing

Leveraged funds carry significant risks that all investors must understand before investing. These risks go beyond standard market volatility and can result in substantial losses.

Amplified losses: The most obvious risk is that leverage amplifies losses as much as gains. During the 2008 Global Financial Crisis, markets fell approximately 50% from peak to trough. A 1.35x leveraged fund would have fallen approximately 67%, requiring a subsequent 200%+ gain just to recover.
Volatility drag: Leveraged funds can underperform in volatile, sideways markets due to the compounding effect of up and down movements. Even if the market returns to its starting point, a leveraged fund may show losses.
Borrowing cost risk: When interest rates rise, the cost of leverage increases, reducing returns. In low-return environments, borrowing costs can consume a significant portion of gains.
Behavioural risk: Perhaps the biggest risk is investor behaviour. Watching your portfolio drop 40%+ is psychologically difficult. Many investors panic and sell at the worst possible time, locking in losses and missing the recovery that has historically followed.
Sequence of returns risk: If you experience a major market crash early in your investment journey, recovery is harder. If you need to withdraw funds after a crash, you crystallise losses at the worst time.
Risk mitigation strategies: Only invest money you truly will not need for at least 15 years. Ensure you have other, less volatile investments as part of your overall portfolio. Do not check your balance frequently during market downturns. Set up automatic contributions to take emotion out of the investment process. Consider reducing leverage exposure as you approach the time you will need the funds.

Frequently Asked Questions

What is the difference between a leveraged fund and a high growth fund?

A high growth fund invests aggressively in growth assets but only invests the money you contribute. A leveraged fund borrows additional money to increase market exposure beyond your actual investment. Both are high-risk, but leveraged funds amplify returns in both directions.

Can I lose more money than I invest in a leveraged fund?

In the New Zealand leveraged funds discussed in this guide (Booster’s offerings), you cannot lose more than your investment. The fund structure protects investors from owing money beyond their original investment. However, you could lose a very substantial portion of what you invested if the markets turn negative and you don't stay invested.

Is the Booster Geared Growth Fund suitable for my entire KiwiSaver?

This depends on your personal circumstances, and we cannot comment. However, the fund is popular with investors who have very long timeframes and choose the fund in an effort to maximise returns.

How do borrowing costs affect my returns?

Borrowing costs reduce your returns. If a fund’s total borrowing-related costs are around 3% annually and the market returns 8%, the leverage benefit is reduced by those borrowing costs. In flat or declining markets, borrowing costs mean you lose money even if the market is unchanged.

What happens to leveraged funds during a market crash?

Leveraged funds fall more than the market during crashes. A 1.35x leveraged fund might fall approximately 40% when the market falls 30%. Historically, markets have recovered from crashes, and leveraged funds have recovered to new highs, but recovery takes time and requires you to stay invested.

How do I know if I have the right risk tolerance for leveraged funds?

It's important to ask yourself an important question - If your investment dropped 50% tomorrow and stayed there for two years, would you stay invested or sell? If you would panic and sell, leveraged funds are probably not suitable. Your actual behaviour during past market corrections is a good indicator.

Are overseas leveraged ETFs like TQQQ a good option?

US-listed leveraged ETFs like TQQQ (3x Nasdaq) use daily leverage resets, which creates severe volatility drag over time. We believe these products are designed for short-term trading, not long-term investing.

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