A Portfolio of Leveraged Exchange Traded Funds

27 Pages Posted: 16 Nov 2018

See all articles by William Trainor

William Trainor

East Tennessee State University

Indudeep Chhachhi

Western Kentucky University

Chris Brown

Western Kentucky University

Date Written: October 24, 2018

Abstract

Leveraged exchange traded funds (LETFs) are marketed as short-term trading vehicles that magnify the daily returns of an underlying index. With the proliferation of LETFs over the last 10 years, a diversified portfolio that mimics the returns of a 100% investment can be created using only a fraction of the investor’s wealth. Results suggest a portfolio created with LETFs outperforms a portfolio using traditional ETFs by approximately 0.6% to 1.4% annually by investing the excess wealth in a diversified or short to mid-duration bond portfolio. Downside risk is reduced using LETFs because the majority of the LETF portfolio is invested in a relatively safe bond fund.

Keywords: Diversified Portfolios, Leveraged Exchange Traded Funds

Suggested Citation

Trainor, William and Chhachhi, Indudeep and Brown, Christopher, A Portfolio of Leveraged Exchange Traded Funds (October 24, 2018). Available at SSRN: https://ssrn.com/abstract=3272486 or http://dx.doi.org/10.2139/ssrn.3272486

William Trainor (Contact Author)

East Tennessee State University ( email )

United States

Indudeep Chhachhi

Western Kentucky University ( email )

1 Big Red Way
Bowling Green, KY 42101-3576
United States

Christopher Brown

Western Kentucky University ( email )

1 Big Red Way
Bowling Green, KY 42101-3576
United States

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