Why do leveraged index funds have inefficiencies because of rebalancing, but simply using margin to get leverage doesn’t have that same problem?

Question

Why do leveraged index funds have inefficiencies because of rebalancing, but simply using margin to get leverage doesn’t have that same problem?

In: Economics

Answer 1

Simply using margin to get leverage doesn’t require that you rebalance daily (or more frequently). And most people using margin do not in fact rebalance daily. If the name of your fund is “2x leverage of SP500” then you need to try to maintain 2x leverage at all times. If the name is “Ben’s marginable etrade acct”, you don’t.