Why You Should Be Using Leverage to Build Portfolio Resiliency

Why It Matters

Strategic, regulated leverage lets advisors add diversified return streams while managing risk, offering a practical path to more resilient portfolios in volatile markets.

Key Takeaways

• Leverage can enhance diversification, not just boost returns.
• Good leverage is liquid, non‑concentrated, and moderate in size.
• Levered assets can lower portfolio risk when paired with core holdings.
• Funding spreads, not absolute rates, drive leverage cost effectiveness.
• Transparent, regulated structures make portable‑alpha strategies more accessible.

Summary

The panel discussed why investors should view leverage as a tool for building portfolio resiliency rather than merely a shortcut to higher returns. By treating diversification as an additive, capital‑efficient strategy, advisers can spread risk across multiple asset classes without sacrificing core holdings. Key insights centered on distinguishing "good" versus "bad" leverage. The speakers introduced the LICE framework—leveraged positions must be liquid, non‑concentrated, and kept at a prudent level. When used to access alternative streams such as managed futures or systematic macro, leverage can actually reduce overall portfolio volatility while expanding return sources. Funding costs depend more on spread dynamics than on the absolute level of interest rates. Illustrative examples included Bridgewater’s All‑Weather approach and Newfound’s beta‑plus‑diversifier funds, which overlay a dollar of S&P 500 with a dollar of trend‑following futures. The discussion referenced the 2008 liquidity mismatch and the 2022 managed‑futures rally, showing how proper leverage can both protect and enhance returns. Regulatory clarity from SEC Rule 18f‑4 was highlighted as a catalyst for transparent, capped leverage products. For practitioners, the takeaway is that modest, well‑designed levered overlays—typically 5‑10% of total assets—can improve risk‑adjusted performance without exposing portfolios to excessive debt. Adoption remains limited by perceived complexity, yet the availability of plain‑vanilla futures and regulated structures lowers barriers for advisors seeking more resilient, capital‑efficient portfolios.

Original Description

Is your diversification strategy eating your return potential or is it actually fueling your growth?

Chris Ward, Portfolio Manager, Balanced Assets, Bridgewater Associates, and Corey Hoffstein, Co-Founder and Portfolio Manager, Return Stacked Portfolio Solutions, sat down with Dave Nadig, President & Director of Research at ETF.com at the ETF Beach House at Future Proof Citywide to dig into why the traditional view of diversification is outdated. Most investors treat diversification as a defensive necessity—something that subtracts from potential returns to protect against the downside. But in an era of unpredictable geopolitical and tech volatility, resiliency is the ultimate offensive weapon.

Tune into the conversation to find out why just going on the defensive is no longer enough in a volatile market, why growth investors are leaving money on the table by staying 100% long U.S. stocks, and how overlays like gold, managed futures, and more can boost resiliency without sacrificing performance.

If you’re a financial advisor or a growth-focused investor, it’s time to stop trying to find alpha through stock picking and start finding it through smarter portfolio architecture.

Follow along with the conversation at: https://www.etf.com/sections/conferences/why-you-should-be-using-leverage-build-portfolio-resiliency