HAA at 1x, 2x, and 3x: where more leverage stopped helping

Across the same 52-year history, Hybrid Asset Allocation's 2x variant beat 3x on CAGR, Sharpe, Sortino, and drawdown. The signals and turnover were unchanged.

Most leverage comparisons change several things at once. The 3x portfolio holds different assets, uses a faster trend rule, or starts after the 3x fund launched. The resulting performance gap cannot be assigned cleanly to the leverage dose.

Hybrid Asset Allocation, credited to Wouter Keller, offers a tighter comparison. BestFolio's 1x, 2x, and 3x variants use the same signals, the same 1974-02-28 through 2026-08-28 history, and the same 2.97 annual turnover. The leveraged versions substitute eligible risk assets with leveraged proxies. Some defensive or unmapped assets remain 1x.

The dose curve peaks at 2x

The 2x variant beat 3x CAGR by 2.48 percentage points. The 3x maximum drawdown was 9.07 percentage points deeper. Its volatility rose by another 2.84 points, while Sharpe declined from 1.26 to 1.07 and Sortino from 2.02 to 1.61.

That combination is the central result. More gross exposure created more risk after 2x and failed to create more compound return in this path.

Why a 3x sleeve can trail 2x

The comparison does not isolate a single cause, but 3 mechanisms fit the result.

1. Compound return pays for variance. A deeper loss requires a disproportionately larger gain to recover. The extra daily movement in a 3x proxy raises the variance drag even when its arithmetic average return rises.

2. Leverage has a financing bill. Leveraged fund expenses and embedded financing consume more return as exposure rises. A rule that rotates 2.97 times a year adds trading friction on top.

3. A monthly tactical signal cannot remove every fast decline. The portfolio can remain in a leveraged risk asset between evaluation dates or during a confirmation period. Raising the dose makes those unavoided days more important.

The backtest shows their combined historical outcome. It cannot allocate the 2.48-point CAGR gap among daily reset effects, financing, path order, and missed exits without a separate decomposition.

The 1x result still owns the best risk-adjusted record

The 2x variant has the highest absolute compound return. HAA Standard has the highest Sharpe at 1.49, the highest Sortino at 2.46, and the shallowest drawdown at -19.74%.

This creates 3 different answers depending on the investor's objective. The historical CAGR winner is 2x. The historical risk-adjusted winner is 1x. The exposure winner is 3x, but it receives no performance crown in this comparison.

What the match controls, and what it leaves open

Same dates, signals, and turnover make this stronger than comparing unrelated strategies. The proxy mapping still prevents a pure scalar experiment. Assets without an eligible leveraged proxy remain at 1x, so the portfolio is not literally the standard return multiplied by 2 or 3 each day.

The 3 observed doses also cannot establish a universal optimum. A different history, financing spread, rebalance timestamp, or proxy set could move the peak. The 2x result is evidence from this specification and this path.

A leverage comparison checklist

• Hold the signal and date range constant.
• List every asset that receives a leveraged substitute and every asset that stays 1x.
• Publish financing, expenses, and turnover assumptions.
• Compare CAGR with Sharpe, Sortino, drawdown depth, and recovery time.
• Inspect whether the highest leverage also has the highest compound return.

HAA passes the most useful test in that list: the variants can be compared on common ground. On that ground, 2x delivered the highest historical CAGR and 3x delivered a deeper loss with a lower return.

Data sources

• BestFolio Hybrid Asset Allocation strategy page
• BestFolio full-period leaderboard

Past performance does not guarantee future results. Backtested results are hypothetical and do not represent actual trading.