I learned so much from this! I do have a few questions though: could you explain some of the merits and drawbacks of having notional exposure greater than 100%? Is notional leverage something we're looking for in portfolio construction, or is notional leverage a byproduct of the type of products in these funds (futures, derivatives, options, etc.)?
Thanks, Roshan! For those seeking >100% notional exposure as an attempt to concentrate their holdings in a particular risk (equities for example), they will likely experience both greater gains and losses. For those seeking that exposure in order to add more diversification to their portfolio, they may see less drawdowns, but may also experience different tax and implementation complexities than with a simple 100% exposure. These funds utilize futures primarily to get the notional exposure.
I learned so much from this! I do have a few questions though: could you explain some of the merits and drawbacks of having notional exposure greater than 100%? Is notional leverage something we're looking for in portfolio construction, or is notional leverage a byproduct of the type of products in these funds (futures, derivatives, options, etc.)?
Thanks, Roshan! For those seeking >100% notional exposure as an attempt to concentrate their holdings in a particular risk (equities for example), they will likely experience both greater gains and losses. For those seeking that exposure in order to add more diversification to their portfolio, they may see less drawdowns, but may also experience different tax and implementation complexities than with a simple 100% exposure. These funds utilize futures primarily to get the notional exposure.