Using Leverage

[William]

Hi there,

Using leverage: My / most brokers give 200% leverage on Stocks/ETN’s. As a result I am buying twice as much ZIV and TMF with this strategy than my allocated fund.

I have ‘assumed’ this ‘might’ give a better ROC on my fund allocated to this strategy than I would otherwise be able to achieve without using the free leverage.

I wonder if you foresee any issues with how this may affect the performance of the MYRS strategy and appreciate your insight.

Thank you

[Alex @ Logical Invest]

Hi William,

the Maximum Yield strategy is already quite aggressive without leverage, and we would not recommend anybody to invest more than 15% of net-worth into it. Now, leveraging an already 3 times leveraged bond ETF and a short volatility component would make this really a wild ride, independent of borrowing expenses and costs for leveraged ETF.

The historical volatility of 22% and a max drawdown of above 20% are further increasing when applying leverage, while the return will not increase linear due to borrowing costs.

I’d strongly suggest you consult with a registered investment advisor before doing such an investment, and rather have a look at some more balanced portfolios using our Portfolio Builder.

[William]

Thanks Alex I think I will halve my capital allocation to MYRS but then use the 2x leverage provided so that my exposure is the same even though as you say I will be 2x volatile. But this way I can achieve similar returns whilst using my freed up capital for another strategy? Any issues with this you think?

[William]

Hi Alex,

Having some further thoughts on this: just using an example if I had a 100k account and my broker provides 200% leverage on stocks…can I invest in 100k worth of MYRS and 100k in something very safe like your Bond Rotation strategy?

This way i wouldnt be overexposed to one particular strategy but would jointly be benefitting and gaining from the protection and income generated by the Bond portfolio?

Is it a cheap way to effectively double my portfolio and my returns but without doubling my risk?

I am considering to additionally subscribe to this strategy as a complimentary less volatile addition to MYRS.

Many Thanks in Advance,

Will

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