Use leverage to get more returns

It’s “difficult to get a lot of income out” of fixed income because of low interest rates, concedes Mark Wisniewski, partner and senior portfolio manager at Ninepoint Partners LP at Board of the council.

However, since the Bank of Canada has raised its key rate, the situation is already better than it was, he points out.

But the current economic situation is not helping any stocks. As inflation and interest rates rise, bonds and stocks fall. “If you look at the bond index this year, it’s down 7% to 9%. Leverage therefore amplifies that decline, unfortunately,” said Wes Ashton, portfolio manager and director of growth strategy at Harbourfront Wealth.

In any case, it is always interesting to use leverage in a bond fund, supports the expert. “The problem now is that stocks are going down and bonds are going down at the same time,” he said.

So, while using leverage in a fixed income fund can magnify gains, it can also magnify losses.

“For a fixed-income manager, there really aren’t a ton of options for generating more yield in a low-cost environment, other than buying a lot of low-value stocks,” notes Mark Wisniewski.

“So you really have to dig under the hood and figure out what kind of leverage you’re using. What’s the multiple [et] what is the impact recommends Wes Ashton.

Thus, the amount of leverage used will be directly proportional to the volatility of the fund. To avoid adding too much volatility, it is therefore better not to add “too much leverage”, explains Mark Wisniewski.


“I think using three turns of leverage is too much,” says Mark Wisniewski, who averages one turn of leverage. “A leveraged round provides attractive income without contributing significantly to volatility.”

“Given that there is already a pullback (in bond prices), it is better today, in terms of price and value, than 12 months ago. So, for people who are thinking about a liquid or leveraged bond investment, it is more favorable today than 12 months ago, given the prices,” Wes Ashton concludes.

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