SIPP providers allowing leveraged positions on cash stocks

popalock

I want to leverage my SIPP rather than holding cash stocks.  I know it's risky, arguably foolish, but putting that aside with whom can I do this?

I've done well on vaccine stocks (increasing my holding almost 3-fold) and have a better feel for trading biotech now.  Before the vaccine landscape changes dramatically I want to place a few largish trades as I'm very confident on a couple of stocks.  The value of the SIPP is ~300k which isn't bad but I want to hit 1m asap at which point I'll lock in the value and move back into indices.  Leveraging would be the only way to do that, I doubt I'll get 2020 returns again.  I'm currently with HL and am thinking about Interactive Investors, the only downer being no telephone support from what I can tell.

Albermarle

As far as I know , a mainstream SIPP provider would not provide such a facility , but I could be wrong .

george4064

There are a number of leveraged ETFs that are eligible to be held within a SIPP (as well as ISAs). Take a look here at some available on HL (other products and platforms are available!): https://www.hl.co.uk/shares/exchange-traded-funds-etfs/list-of-etfs?etf_search_input=leverage&x=0&y=0&companyid=&sectorid=&tab=prices

You will need to certify yourself as a sophisticated investor before investing in any of those products, that usually involves taking a test to prove your knowledge. I shouldn't have to say this, but make sure you have thoroughly read through and understand the Key Information Document (KID) before investing!

popalock

thanks, I've found some small administrators who then give you a list of brokers to choose from.  This contrasts to regular SIPP providers who give you an all in one solution (administrator and broker).

Of the separate brokers, each one is different of course, giving you different benefits (including the ability to trade pre-market, and view your risk/exposure in a more sophisticated way), so you choose the one that works for you.  The annual admin fees are higher than regular SIPP providers, but they allow for a very customisable portfolio including land, private equity, and yes derivatives too.  If you actively trade on your SIPP and want access to a wide range of derivatives, then this seems to be the way to go.  Yes your fees will be higher by £100-200 per year (and you have an application fee to pay as well!), but this will easily be offset by gains made on trades (assuming you know what you are doing).

@george4064 yup leveraged ETFs are good but I want to leveraged exposure on individual stocks.  Just think about it, when you buy a house with a mortgage you are leveraging yourself and then with the market gains most people are handsomely rewarded, eg selling part way through the mortgage and realising the gains in cash.  Benefitting in the same way with your SIPP makes sense to me especially given the ultimate total value needs to be substantially more than the value of your home.  It's a very risky thing to do of course if you have no prior trading experience so it's only really a good idea if you have been successful trading stocks and options previously.

george4064

popalock said:

thanks, I've found some small administrators who then give you a list of brokers to choose from.  This contrasts to regular SIPP providers who give you an all in one solution (administrator and broker).

Of the separate brokers, each one is different of course, giving you different benefits (including the ability to trade pre-market, and view your risk/exposure in a more sophisticated way), so you choose the one that works for you.  The annual admin fees are higher than regular SIPP providers, but they allow for a very customisable portfolio including land, private equity, and yes derivatives too.  If you actively trade on your SIPP and want access to a wide range of derivatives, then this seems to be the way to go.  Yes your fees will be higher by £100-200 per year (and you have an application fee to pay as well!), but this will easily be offset by gains made on trades (assuming you know what you are doing).

@george4064 yup leveraged ETFs are good but I want to leveraged exposure on individual stocks.  Just think about it, when you buy a house with a mortgage you are leveraging yourself and then with the market gains most people are handsomely rewarded, eg selling part way through the mortgage and realising the gains in cash.  Benefitting in the same way with your SIPP makes sense to me especially given the ultimate total value needs to be substantially more than the value of your home.  It's a very risky thing to do of course if you have no prior trading experience so it's only really a good idea if you have been successful trading stocks and options previously.

Have you actually looked through the list within the link I posted? There are ETFS that provide leveraged exposure (long/short) on individual stocks as well as commodities, indices Etc.

Also, I know what leverage is so no need to explain the benefits/downsides of leveraging a portfolio. Furthermore, most people buy a house as a home, for a roof over their head, not to try enhance their investment returns.

popalock

george4064 said:

Have you actually looked through the list within the link I posted?

Furthermore, most people buy a house as a home, for a roof over their head, not to try enhance their investment returns.

oops sorry, yes there's a handful of the most popular stocks in there (Tesla, Apple etc..).  And as ETFs you don't need to have plenty of cash in the account for margin calls.  So that's easier to manage.  But I have some very specific small-cap stock I wanted to increase my exposure to.  Maybe I'm just being difficult (and greedy)!  Either way I'm going to leave HL.  The annual fees are high, the transaction costs (if you regularly trade) are high too.  I noticed with Interactive Investors you get 6 months off the annual admin fee for the first year, it has a lower annual fee anyway, you can trade out of hours, and there's a cashback deal through Topcashback for up to £245 on new accounts!

I'm still debating if I really need to leverage myself so much.  Biotechs have so much volatility on them anyway.

Thrugelmir

If it's small cap stock. Why not simply take a long position.  Build the position progressively on price weakness. Pay back then occurs as the market capitalisation hits higher and higher levels. Which draws more in more institutional buyers for the stock. Creating self driven momentum. 

TheAble

How many years do you have until you can draw on your SIPP? If a long time then I don't see why you want to hit 1m asap. If you've got 20+ years to go you'll likely hit 1m anyway with a much more conservative approach.

bd10

If you seek leverage, you could investigate whether the odd investment trust tickles your fancy. Henderson High Income for example has a gearing range of 0 - 40%. This trust has one of the highest gearing ranges I found on the AIC just now. (I would not chose a trust on the basis of gearing but rather what's in it, its objective and how it's run.)

One thought on leveraged ETFs: I had a look at some of them a little while back and wanted to check whether a 2x or 3x reference index is actually what is says on the tin. Oddly enough, the ones I sampled fell short. The actual/empirical beta is ways lower than the advertised factor. When I ran the regression (daily returns), they also had negative alpha's. So for leveraged tracking I find them actually a bit inefficient. Derivatives are used to amplify the daily moves to replicate by a factor. That's inefficient by design, thus the regression results I obtained. IT's on the other hand borrow to invest and do not have to chase daily market moves. Mind you the sharpe is not neccessarily better than non-leveraged but in absolut return terms, with a 10k position in a trust you have actual 12k market exposure on average.