In today’s investment world, excessive leverage is often vilified, and rightly so. It is very remarkable to the nonsense in which it was arrived for example in the world of the cfds, where there were houses that gave leverage of 300 to 1. An approach that normally used to end in problems and excesses of improper uses.

For a person trying to hedge currency on a real portfolio, such leverage is a blessing, but for 99% of those who used it it was the beginning of the road to hell of investment.

As a result of all this, leverage has a bad press. But we should not fall to extremes. Prudent and moderate leverage is not only not bad, it is good. It has many advantages. For example, the best investor in the world Buffett uses this figure very frequently, although in a very prudent way.

Well, in this line of thought, I really liked this quite serious article, where a thorough study of this possibility is addressed. What if instead of trading with the dollar we have, we try, for example, with 1.5 dollars via leverage? It is not excessive. Let’s see the results. The study is done before the great seizures of this year 2020.

The article can be read in English here:

Tactical Portable Beta

Tactical Portable Beta

Here’s a quote about an ETF, which reflects the main idea of ​​the article:


In August 2018, WisdomTree introduced the 90/60 US Balanced Fund (ticker: NTSX), which combines equity exposure with a US Treasury futures ladder. USA To create the equivalent of a 1.5x 60/40 Leveraged Portfolio. On March 27, 2019, NTSX received the 2018 Newest and Most Innovative ETF from

Here I put a chart where I have compared the progress of this ETF with that of the S&P 500.

At the moment it is going much better.

A larger comparison appears in the study, and not only with the S&P 500 but also with an unlevered 60/40 portfolio:



The profitability is much higher although it is striking how logically the volatility is much higher.

I save you a good part of the study, which is very dense, and I get to the point. After many theoretical considerations, the authors propose a new approach to this idea. Having a variable input to the model, and not statically as usual.

See this quote:

the exposure to bonds and stocks would be adjusted tactically, regardless of the other exposure. While theoretically less sensible, this approach could be interpreted as saying: “Generally, we want exposure to long-term equity and bond risk premiums, and we like the 60/40 framework, but there may be certain scenarios where We believe that what is expected in terms of return does not justify the risk. ” The downside to this approach is that it can sacrifice the potential benefits of diversification between stocks and bonds.

Since the original concept of portable beta is to increase exposure to the risk premiums we are already exposed to, we prefer the second approach. We believe it more accurately reflects the idea of ​​trying to provide long-term exposure to return-generating risk premiums, while trying to avoid the significant and lengthy reductions that can be realized with the buy and hold approaches.

The authors have published in other articles a series of complex signs to invest in bonds, you can see for example in this article:

Timing Bonds with Value, Momentum, and Carry

Applying their signals, they propose this portfolio with the leverage:

90% trend equity, 20% bond value, 20% bond momentum, and 20% bond carry

We would be talking about a model therefore 90/60, that is to say 90% variable income and 60% fixed income, in which 60% of bonds are mutating from one bond to another according to market conditions. These would be the maximum values. The results improve a lot.



For those who want to study this thoroughly I recommend reading the article. We are not going to delve further into the following things that they propose to complete their model. I already notice that everything is very complicated and that it is quite complicated to put into practice.

I would stay with the following conclusions.

A 90/60 model via leverage is much better than a classic 60/40 model.

A static 90/60 model does not have a much lower profitability than the dynamic model proposed by the authors, making things much more complicated.

A 90/60 model can be greatly improved, greatly reducing volatility and drawdowns, using a filter of the classics as the 10-month average, period for the equity part. And the fixed income part can be greatly improved using a universe of various diversified bond etfs and using one or the other with any filter of the style of this 10-month average.

Fewer complications and good results. The authors’ idea is good, but we wouldn’t complicate it as much, and it can be just as effective.

And for those who do not want any complications, at least contribute the idea of ​​the etf discussed at the beginning, with a classic 90/60 portfolio to buy and maintain.

Today’s article does not pretend any more, only to plant a possible idea to be developed already by each one.