Why You Should Be Using Leverage to Build Portfolio Resiliency
Leveraged strategies have garnered a particular reputation with investors due to their outsized volatility and return-chasing associations. However, Corey Hoffstein and Chris Ward make the case that thoughtful leverage can be used to create better overall portfolio health by building for resiliency.
The traditional investment paradigm often treats diversification as a defensive chore—insurance for the portfolio that inevitably slows down performance. 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 talk the shifting mindset around leverage.
Rather than viewing diversification as a means of mitigating loss through subtraction, forward-thinking advisors are beginning to view it through the lens of resiliency. In an era defined by unpredictable geopolitical shifts and rapid technological disruption, resiliency isn't just about surviving volatility; it’s about building a robust architecture that remains functional regardless of market conditions.
For the modern growth investor, often over-concentrated in 100% U.S. equities, the challenge is overcoming the perception that adding non-equity assets dilutes returns. One potential solution lies in capital efficiency and also in return stacking. By utilizing overlays such as managed futures, gold, or merger arbitrage on top of a core beta position (like the S&P 500), advisors can move from a strategy of subtraction to one of addition. This allows for the introduction of diversification without sacrificing equity growth, effectively letting investors extend their dollars further.
The most powerful tool in an advisor's kit today might be the ability to create additional return streams without the impossible task of consistently picking individual stock alpha. By embracing a structural approach to portfolio construction—layering diverse, non-correlated assets—advisors can solve for vulnerabilities while keeping their portfolios actively engaged in markets. This shift from defense to one instead based around resiliency transforms the client conversation from one of sacrifice to one of empowerment, ensuring portfolios are not just protected, but prepared to perform in a volatile world.
