The performance between levered (high portfolio heat) and non-levered funds was not materially different. So why decrease leverage then?
“The study also points out that although funds employing leverage usually experience greater volatility, the difference in performance between leveraged and non-leveraged funds since 2005 is not statistically significant.”
Investors don’t want high daily volatility in their account balances. In order to achieve that, funds and managed accounts need to cut the portfolio heat and trade smaller. Emerging CTA and managers take heed.