Yes, financial advisors can properly utilize leveraged ETFs in client portfolios

By iSectors Chief Investment Officer, Chuck Self on April 29, 2015

Financial advisors have varying views of the use of leveraged ETFs.  These securities have the goal of providing (for 2x leveraged ETFs) double the daily return of the reference index.

For example, from the ProShares website“ProShares Ultra Health Care seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the Dow Jones U.S. Health CareSM Index.” It should be noted that iSectors’ Post-MPT Growth Allocation utilizes 2x leveraged ETFs to increase exposure to market sectors—the underlying quantitative model identifies this as being very attractive. Although not always owned in the portfolio, this strategy has had leveraged positions approximately two-thirds of its 10 year history.

iSectors has found a long-term use for what was originally constructed to be a short-term instrument.

A leveraged ETF manager recently published research that found that leveraged ETFs are optimal for long-term holding periods. Their article, Should Leveraged ETFs be Held for Long Horizons?, discusses the following:

  • Myths that regulators and compliance departments have created around leveraged ETFs
  • Leveraged ETF long-term expected return calculations
  • Methodology and results of determining optimally leveraged ETFs
  • Comparison of actual results to the expected

We hope that, in addition to Post-MPT Growth’s positive 10-year historical performance, this article provides theoretical evidence that leveraged ETFs are proper in some clients’ portfolios.*

Contact iSectors today, for more information about iSectors’ Post-MPT Growth Allocation.

*Past performance may not be indicative of future results.


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