This article investigates 1.25X daily leveraged stock and bond exchange-traded funds (ETFs) as an alternative asset allocation for periodically rebalanced portfolios. Performance is analyzed by replicating funds from 1989-2017. Conditions for excess returns are derived analytically and confirmed empirically. Simulations are conducted to evaluate portfolio performance to provide robust assessments under a variety of market conditions. Results indicate a potential to amplify gains with a marginal reduction in Sharpe ratio. We conclude that for individual investors seeking additional returns from a stock/bond portfolio, the reduction of risk-adjusted return may be small enough to justify 1.25X leveraged ETFs over other alternatives with similar risk/reward profiles.
