Investing Insights

A Better Way to Use Leverage in Your ETF Portfolio

Nov 1, 2024

Bryan Armour, Director of Passive Strategies Research at Morningstar, shares insights on effectively using leverage in ETF portfolios. He discusses promising leveraged ETFs while addressing volatility drag and risks associated with them. Travis Miller, a strategist covering energy, dives into how tech companies are turning to nuclear energy to meet the surging demands of data centers. He explains the potential of small modular reactors in providing stable, carbon-free electricity, amidst the growing need for energy in the AI landscape.

26:16

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Episode guests

Travis Miller

Bryan Armour

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Episode notes

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Quick takeaways

Leveraging investments can amplify returns but carries risks, particularly due to volatility drag in leveraged ETFs affecting long-term performance.

Tech companies are increasingly exploring nuclear energy, particularly small modular reactors, to meet the high energy demands of data centers sustainably.

Deep dives

Understanding Leverage and Its Risks

Leverage involves borrowing funds to invest, which can amplify returns but also increases risk. While it can lead to significant gains, poor market conditions can trigger losses and result in costly margin calls, making leverage a controversial and often detrimental tool for investors. Historical examples, such as the financial issues faced by Lehman Brothers and other leveraged entities during downturns, illustrate the potential dangers of using borrowed capital. Furthermore, leveraged exchange-traded funds (ETFs) have notably suffered from volatility drag, where the need to constantly adjust exposure in turbulent markets leads to steep declines in performance.

Intro

3min

Navigating Leveraged ETFs: Risks and Strategies

7min

Exploring the Energy Demands of the AI Expansion

3min

The Power Paradox: SMRs and Data Centers

11min

Understanding Data Centers and Energy Demands in Investment Strategy

2min

Bryan Armour, director of passive strategies research for North America for Morningstar Research Services, talks about the best way for most retail investors to leverage and which leveraged ETFs look promising. Travis Miller, strategist for Morningstar Research Services, discusses how tech companies are looking to nuclear energy to fuel data centers’ surging demand.

Why Leverage Has a Debatable Reputation in Investing

Volatility Drag and Leveraged ETFs

Why Does Leverage Kill ETFs?

What Are ETPs?

A Better Way for Investors to Use Leverage in Their Portfolio

How Can Investors Add Leverage to Their Portfolio Without Volatility Drag?

Costs of Leveraged ETFs

How Most Investors Should Gain Exposure to Leverage

Do Leveraged ETFs Show Promise?

What’s Coming Up in the Markets?

How Much Energy Does a Data Center Need to Run?

Why Small Modular Reactors Could Be Key to Powering Data Centers

Are Carbon-Free Pledges Driving Companies Toward Nuclear Energy?