Welcome to the 2018 AFS Annual Meeting, being held this year, in conjunction with FPA in Chicago!
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Tuesday, October 2 • 8:00am - 8:50am
A1b - Risk and Reward of Fractionally-Leveraged ETFs in a Stock/Bond Portfolio [CFP Investments]

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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.

Author(s): James DiLellio

avatar for James DiLellio

James DiLellio

Associate Professor, Pepperdine University

Tuesday October 2, 2018 8:00am - 8:50am CDT
Michigan 1A

Attendees (2)