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Here’s what you need to know today

• The US and China have agreed to roll back tariffs on each other’s goods for an initial 90-day period, according to a joint statement released by the two countries. The US will lower tariffs from 145% to 30% and China will lower tariffs from 125% to 10%. This announcement comes after a weekend of negotiations in Geneva, Switzerland. (CNN)

  
  

• Newly elected Australian Prime Minister Anthony Albanese has announced his new cabinet. Notable moves include Tanya Plibersek from environment to social services, Murray Watt taking over environment, Michelle Rowland from communications to attorney-general, and health minister Mark Butler’s portfolio has expanded to now include the NDIS. (Capital Brief)
  
  

• The Liberal Party will decide their new leader today. Liberal MPs and Senators will decide between Deputy Leader Sussan Ley and Treasurer Angus Taylor. Whoever wins, their first order of business will be reinvigorating a party that just reported it lost 10% of its membership in the past 12 months. (AFR)
  
  

• After Ukrainian President Volodymyr Zelensky offered a 30-day unconditional ceasefire to Russia, Russian President Vladimir Putin refused and instead offered direct negotiations between the two countries. At Trump’s urging Zelensky has agreed to meet Putin in Turkey on Thursday.
  
  

• Bitcoin has staged a stunning turnaround. After trading as low as US$74,000 in early April, the cryptocurrency is back around $104,000 and is creeping closer to its record high of just shy of US$109,000.
  
  

• Meta is reportedly planning to pay the fee rather than negotiate deals with Australian media companies under the News Media Bargaining Code. In 2021, Meta reluctantly negotiated deals with major Australian publishers including Nine, News Corp and Seven. As those deals come to an end, they’ve indicated they are not interested in re-signing. (Capital Brief)
  
  

• Woolworths have announced plans to cut prices on 400 items as Australia’s largest supermarket feels the challenge from rival Coles. In the past 12 months, Coles is up 37% while Woolworths is up 6%. (AFR)
  
  

• Norway’s sovereign wealth fund was advised to sell shares in Australian resource companies Rio Tinto and South32 over environmental issues. At this stage the US$1.7 trillion fund will actively engage with the two companies. (Capital Brief)
  
  

• Number 2 ride-sharing app Lyft reported bookings grew for the 16th consecutive month as CEO David Risher said he doesn’t see “anything to worry about” with recent economic challenges and “the consumer demand is absolutely there.” (Quartz)

What the…?

The US has stepped up its spying on Greenland. The order came from the US Director of National Intelligence Tulsi Gabbard last week, ordering America’s many intelligence agencies to have a particular emphasis on collecting intelligence from the Danish territory.

Since being re-elected President Trump has emphasised his desire for Greenland to become a part of the US. (WSJ)

Investing is a lifelong journey

Here’s what you can learn today.

Using leverage as part of an investment strategy

This is an excerpt from our conversation with Cameron Gleeson, Senior Investment Strategist at Betashares. Tune in to the full conversation on Equity Mates Investing (Apple | Spotify | YouTube)

Question: Why would investors use leverage or gearing as an investment strategy?

Where gearing is really powerful is when we think about how much it costs to buy a house these days or how long people are living. Ultimately the number one risk we face may not be risk or volatility or a sell off in markets. It might be building up enough capital to reach our financial aspirations or indeed to last the rest of our lives. And the great thing about gearing or leverage is it allows us to use capital that we don't have today to put into the market and compound returns over the long term. 

If we think about the growth in property prices over the last 10 years, we often say that Australian wealth has been built off home ownership. It's not actually the home ownership that's led to that growth in wealth. It's the ability to use leverage when you're buying a house.

What are the different ways to achieve leverage through ETFs and why do some methods work better than others?

There are two primary ways to achieve leverage within ETFs. First is internally geared funds, where if an investor puts in $100, the fund manager arranges a loan for say $50 to buy $150 worth of shares, all held within the fund. The loan is against the fund itself, and the end investor has no direct relationship with the lender. The second approach uses synthetic ETFs, where instead of buying underlying shares with a loan, the ETF provider uses futures contracts. While both approaches can achieve similar pre-tax outcomes, they have very different tax consequences. Internally geared funds holding underlying shares can take advantage of capital gains tax discounts, while synthetic ETFs using futures result in income gains rather than capital gains, often leading to higher tax consequences.

Prefer to watch our conversation with Cameron? Check out the full episode on the Equity Mates YouTube:

Today’s sponsor is PIMCO

In an era of rising uncertainty and falling cash rates, there are a number of reasons why you should consider an active bond ETF. With bonds today yielding more than their cash equivalents, investing in a bond ETF can provide a competitive source of income while providing important diversification to counterbalance your existing equity exposure.

PIMCO’s new ETF range offers Australian investors an easy way to gain instant access to a daily liquid, diversified allocation of bonds. These ETFs benefit from PIMCO’s 50 years of active management expertise and the full strength of its global platform. 

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