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Primary Article

Leverage and the Limits of the Possible

Frederick E. Dopfel
The Journal of Portfolio Management Spring 2006, 32 (3) 12-25; DOI: https://doi.org/10.3905/jpm.2006.628402
Frederick E. Dopfel
A Managing director and senior strategist with the Client Advisory Group at Barclays Global Investors in San Francisco.
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  • For correspondence: fred.dopfel@barclaysglobal.com
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Abstract

Leverage is rarely, if ever, explicitly taken into account in investment policy decisions for both practical and economic reasons, although investors can borrow and lend among asset classes to achieve blends of exposures not otherwise available in traditional portfolios. But even with the most judicious use of leverage, how much is it possible to improve overall performance of the policy portfolio? Leveraging individual asset classes provides no additional benefits over simply leveraging the highest Sharpe ratio portfolio, regardless of asset class assumptions. Further, investors are unlikely to achieve any net benefit from leverage for policy purposes, unless the investor can express an informed and confident view about expected market returns that differs materially from the consensus.

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The Journal of Portfolio Management
Vol. 32, Issue 3
Spring 2006
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Leverage and the Limits of the Possible
Frederick E. Dopfel
The Journal of Portfolio Management Apr 2006, 32 (3) 12-25; DOI: 10.3905/jpm.2006.628402

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Leverage and the Limits of the Possible
Frederick E. Dopfel
The Journal of Portfolio Management Apr 2006, 32 (3) 12-25; DOI: 10.3905/jpm.2006.628402
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