Enhanced Indexing Strategies: Utilizing Futures and Options to Achieve Higher Performance

CHAPTER 12

Managing the Leveraged Multistrategy Portfolio

The final chapter of the book addresses the challenge of creating and managing multistrategy leveraged index portfolios. It begins with an overview of the advantages and disadvantages of utilizing alternative assets in a portfolio. These assets have become increasingly mainstream, but we’ll make the case that although they fit the definition of investments they are not suitable for most portfolios.

Next, the performance of the ProShares Ultra S&P 500 ETF is investigated. This ETF is one of the most popular and widespread leveraged investments available for retail investors, yet, during the period since inception, it has lagged its underlying index, the S&P 500. The causes for this underperformance are illuminating and a better understanding can help investors avoid similar underperformance.

This chapter ends with steps to build and manage your own leveraged multistrategy investment portfolio using principles of effective management. Management is the practice of setting shared objectives, creating a strategic plan, directing action, and measuring results, and the section covers how each of those steps apply specifically to leveraged asset management.

THE QUESTION OF ALTERNATIVE ASSETS

We start with an important portfolio management question: Should alternative asset classes be included in the investment portfolio? Alternative assets such as precious metals, commodities, real estate, and currency have become increasingly ...