Robust Leveraged ETF Portfolios Extending Classic 40/60 Portfolios and Portfolio Insurance

Leveraged ETFs provide a convenient mechanism to dynamically change portfolio exposure and can be successfully used to construct robust portfolios that perform well during equity market drops. We start with a classical 60 percent Bonds/ 40 percent Stocks portfolio with monthly rebalancing that delivered 9.4 percent annually over since 1986. Its 120 percent leveraged cousin that is 72 percent Bonds/ 48 percent Stocks delivered 10.4 percent annually since 1986, same as stocks but with lower volatility and drawdowns. Instead of leveraging with borrowing at portfolio level we can use a portfolio of leveraged ETFs.We consider several balanced stocks/bonds portfolios created with leveraged ETFs but without borrowing money at portfolio level and show that they present a very attractive risk-adjusted alternative to just stock index and classical stocks/bonds portfolios without leverage. In particular portfolio of 40 percent TQQQ, 20 percent TMF, 40 percent TLT with monthly rebalancing proposed by us in 2017 paper as a leveraged ETF alternative to classical stocks/bonds portfolios performed well in 2018 and through beginning of Coronavirus crisis up to February 28, 2020. What happens to this portfolio as crisis continues still to be seen.A classical portfolio insurance strategy of Black-Jones-Perold can be easily implemented with leveraged ETFs. More complex dynamic portfolio strategies can also be implemented using leveraged ETFs