Optimize your leverage

18 September 2026, 12:07 UTC Chief Investment Office GWM Investment Research

Strategic: Optimize your leverage Optimize your leverage Author: Sagar Khandelwal, Strategist, UBS Switzerland AG

• Why? 1) Borrowing strategies can mitigate tax drags, potentially improve returns, and enhance diversification when carefully managed. 2) Some borrowing capacity can be reserved to build resilience against emergency situations instead of holding excess cash that is vulnerable to inflation. 3) The unique risks of borrowing, including the potential requirement to sell assets to meet a margin call or repay debt, should be carefully managed as part of a well-diversified investment approach. Prudent borrowing can enhance liquidity and portfolio flexibility, provided leverage remains aligned with repayment capacity and carefully managed risks. Source: Jason Leung_Unsplash

Borrowing is risky, but we believe that proactive, prudent, and strategic borrowing can enhance an investor’s financial Japanese yen: expectations matter plan. While central banks have turned more hawkish and The Japanese yen’s rally stems primarily from markets many major government bond yields have risen to multi-year anticipating tighter Bank of Japan policy, with nearly two highs, borrowing can still make sense as part of a robust and additional increases priced in by year-end. However, we risk-controlled financial plan. believe those expectations may be potentially excessive given Bank of Japan Governor Ueda’s cautious approach. US and Eurozone: rates to rise As such, we expect some moderation in yen strength rather Recently CIO revised its outlook for the Federal Reserve. We than an uninterrupted rally. now expect two US interest rate hikes of 0.25 percentage points, taking the target range for the fed funds rate to While the outlook for borrowing costs has become 4.00-4.25%. In the euro area, the European Central Bank more complex, we still believe in the right circumstances has already raised its deposit rate to 2.5%, with another borrowing can help with: quarter-point increase now expected in December. • Managing liquidity: A flexible line of credit can provide Swiss franc: low rates, not low risk immediate access to funds without the need to sell Switzerland remains relatively sheltered, rather than assets, reducing the necessity of holding excess cash, untouched: Swiss bond yields have risen only moderately, money-market funds, or fixed-term deposits. This may be and CIO expects inflation to average 0.6% both this year beneficial for handling tax bills, capital calls, or retaining and next. We forecast the Swiss National Bank to hold rates the flexibility to make larger investments. If an investor for now before raising its policy rate to 0.25% around the needs funds but finds a part of the portfolio has sustained middle of next year. losses, it may be more prudent to borrow against a more resilient part of one's holdings than to sell the assets The Swiss franc outlook is less straightforward. Higher euro whose price has fallen and lock in losses. and dollar interest rates may weigh on it initially, while we anticipate Swiss franc appreciation over 12 months • Improving diversification: Borrowing against existing assets to invest in less correlated assets may help smooth as interest-rate gaps narrow. We can foresee alternative portfolio fluctuations and broaden return sources, with scenarios that include both further Swiss franc weakness future cash flows used to gradually reduce debt. with stronger global growth, and sharp CHF appreciation amid economic or inflation shocks.

This report has been prepared by UBS Switzerland AG. Please see important disclaimers and disclosures at the end of the document.

• Currency management: Borrowing in foreign In today's uncertain environment, it is especially important currencies can help manage exchange rate risks to explore borrowing plans in terms of potential interest rate associated with future foreign income and offer scenarios, with flexibility to adjust plans in the event of either additional funds for domestic investments. It may also be adverse or more favorable growth and rate scenarios. more cost-effective to borrow…