Leverage Is Bad, Except When It Isn't
The article discusses the nuanced role of leverage in investment strategies. It highlights the distinction between using leverage to amplify a single investment versus employing it as a diversifier in a portfolio. Morningstar's recent reclassification of a fund category reflects this evolving understanding of leverage in financial markets.
- ▪Leverage is often viewed negatively, yet institutions have used it for decades to enhance portfolio safety.
- ▪There is a significant difference between using leverage to amplify a single bet and using it to diversify an investment.
- ▪Morningstar has renamed the 'Multi-Asset Leveraged' category to 'Multi-Asset Overlay' to clarify its purpose.
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