Carrier 170 Strategy Overview

Carrier 170 is Carrier with one change: during the recovery phase of a U.S. equity drawdown, and only then, the growth side of the portfolio is held through 2x funds instead of unleveraged ones. U.S. large cap (IWB) becomes a 2x S&P 500 ETF (SSO), and the Nasdaq 100 (QQQ) becomes a 2x Nasdaq 100 ETF (QLD). Every other rule is identical: the same credit-spread signal, the same Risk On / Risk Off test, the same defensive ladder, the same rebalancing.

The base strategy's logic, including why it watches the high yield credit market instead of price momentum, is on the Carrier page.

What the 170 means

Carrier's Risk On portfolio has four holdings, and only two of them are leveraged:

Holding	Weight	Unleveraged	During a deployment	Notional
U.S. large cap	50%	IWB	SSO (2x)	100%
Nasdaq 100	20%	QQQ	QLD (2x)	40%
Managed futures	15%	DBMF	DBMF	15%
Long/short equity	15%	CLSE	CLSE	15%
Total	100%			170%

The managed futures and long/short positions are never leveraged. They are the part of the portfolio meant to hold up when equities do not, and doubling them would defeat that purpose.

Notional exposure is 100% whenever leverage is dormant, which is most of the time, and 170% when it is deployed. Over the backtest, leverage was deployed in about 28% of months.

How Smart Leverage decides

Dormant. Nothing happens. Carrier 170 holds exactly what Carrier holds.

Armed. U.S. large cap has closed a month 10% or more below its highest prior month-end close. Arming and deploying cannot happen in the same month, so there is always at least a one-month gap between the drawdown being recognized and leverage going on.

Deployed. From armed, leverage deploys in the first month where U.S. large cap's momentum has turned back up (its weighted average of 1, 3 and 6 month returns is beating T-bills) and Carrier is Risk On. Smart Leverage sits downstream of the credit-spread test and cannot override it: if Carrier has stepped out of equities, there is nothing to leverage.

Both leveraged positions move together. There is one decision, based on U.S. large cap, and when it says deploy, IWB and QQQ are both swapped for their 2x versions in the same month.

The three exits

• Momentum turns. T-bills catch up to or pass U.S. large cap on the weighted-average measure.
• Any Risk Off month. The credit signal takes Carrier out of equities, and the leveraged positions go with it.
• The 13-month cap. No deployment runs longer than 13 consecutive months. The cap sits at the long-term capital gains boundary, so a full-length deployment clears the one-year holding period.

One trigger, one deployment

When a deployment ends, for any reason, the drawdown that armed it is spent. Favorable momentum the next month does not redeploy it. A fresh 10% drawdown is needed before leverage can be used again. This is what separates the module from a naive rule that simply levers whenever the trend is up.

Why leverage and the credit signal fit together

Carrier's defining feature is how it gets back in after a credit crisis. It does not wait for spreads to return to normal. It re-enters once the spread has fallen two points from its six-month high, which in practice means close to the market low, while stocks are still well below their previous peak.

That is exactly the condition that arms Smart Leverage. So the typical sequence in a crisis runs like this:

1. Credit stress rises and Carrier moves to Treasuries.
2. Stress starts to ease, and Carrier re-enters its growth portfolio early in the recovery.
3. Once U.S. large cap momentum confirms the turn, leverage deploys, typically one to three months after re-entry.

This happened in 2003 (re-entry in February, leverage in April), 2009 (re-entry in February, leverage in May) and 2020 (re-entry in June, leverage in June). Those three deployments are where most of Carrier 170's extra return came from.

The defensive side is not leveraged

Carrier 170's Risk Off holdings are the same as the base strategy's, unleveraged: extended-duration Treasuries (EDV) in the first month of a defensive run, then intermediate Treasuries (IEF) for the rest of it.

This is also true of Carrier 240. Unlike some leveraged strategies, no Carrier variant ever holds a leveraged Treasury fund.

Deployments in the record

January 1997 through August 2026, Carrier 170 deployed leverage 15 times. The pattern is typical of the module: a handful of long deployments during real recoveries did the heavy lifting, and a number of short ones cost a little.

Deployment	Months	How it ended	Carrier	Carrier 170
Dec 1998 - Jul 1999	8	Momentum turned	+20.7%	+36.0%
Apr 2003 - Apr 2004	13	Cap	+33.5%	+59.8%
May 2009 - Feb 2010	10	Risk Off	+23.7%	+46.5%
Oct 2010 - Jul 2011	10	Momentum turned	+15.6%	+26.0%
Jun 2020 - Jun 2021	13	Cap	+40.1%	+77.2%
Dec 2023 - Dec 2024	13	Cap	+28.3%	+46.2%
Nine shorter deployments	1 to 9 each	Mixed	Mixed	Six losses (-3% to -12%), three gains (+5% to +9%)

Figures are hypothetical returns over each deployment period, compared with the unleveraged base strategy over the same months. The worst single short deployment cost 12.3% (May 2010) against 6.7% for the base strategy.

What leverage costs

January 1997 through September 2026, net of trading friction:

	CAGR	Max Drawdown	MAR
Carrier	+14.2%	-16.1%	0.88
Carrier 170	+16.8%	-20.3%	0.83
S&P 500	+9.9%	-51.0%	0.19

The Ulcer Index measures how deep and how long drawdowns were, not just the single worst one: lower is better. UPI (Ulcer Performance Index) is return above T-bills per unit of Ulcer Index: higher is better.

The first step of leverage is the efficient one here. Carrier 170 earns close to three points a year more than the base strategy for about 3.5 points of extra maximum drawdown, and its UPI, return per unit of drawdown pain, is nearly unchanged (2.47 against 2.50). Leverage is applied only during recoveries the credit signal has already cleared and momentum has confirmed.

Against LT Gain 200 over the same period, Carrier 170 earned a little more (17.2% against 16.5%) with a noticeably shallower maximum drawdown (-19.7% against -23.4%) and a higher UPI (2.47 against 2.24).

Taxes and holding periods

Carrier is built to favor long-term capital gains, and leverage changes that less than you might expect. In the backtest, about 69% of Carrier 170's realized gains were long-term, against 73% for the base strategy.

The difference comes from deployments that end before the one-year mark. When a deployment ends early, whether on a momentum turn or a Risk Off month, the leveraged positions are sold short-term. The three longest deployments ran the full 13 months and cleared the holding period, and those were also the most profitable ones.

Where it can hurt

• Short deployments. Momentum can confirm a turn that does not last. Six of the nine shorter deployments lost money, at roughly twice the base strategy's rate.
• 2022. The credit signal never reached 6.5% in 2022, so Carrier stayed invested through that year's decline. Leverage was not deployed during the decline itself, because momentum was negative, but it deployed in December 2022 into a further drop. Carrier 170 lost 18.0% that year against 14.1% for the base strategy.
• Leveraged fund behavior. SSO and QLD track twice the daily return of their index. Over longer holding periods their return depends on the path the index took, and choppy markets erode it. The 13-month cap bounds that exposure.

Who it is for

Carrier 170 suits an investor who already wants Carrier, accepts that for roughly a quarter of the time the U.S. equity portion of the portfolio moves at twice the market, and wants that extra exposure concentrated in the early stages of recoveries rather than held all the time.

It is a poor fit if you would not hold base Carrier on its own merits, if you want the fastest possible exit in a sudden crash, or if you have not thought about how you would behave with a leveraged position during a drawdown.

Carrier 240 runs the same module at 3x. It is a meaningfully different risk proposition, not simply more of this one.

The base strategy in brief

Carrier reads the high yield credit spread each month end. It goes fully Risk Off, into Treasuries, when the spread is at or above 6.5% and has not yet fallen two points from its six-month high. Otherwise it holds U.S. large cap 50%, Nasdaq 100 20%, managed futures 15% and long/short equity 15%, rebalanced each January or when a holding drifts ten points from target.

The full rules, and how Carrier compares to LT Gain, are on the Carrier strategy page.

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Past performance, including backtested results, is not indicative of future results. Backtested performance is hypothetical, does not reflect actual trading, and benefits from hindsight in the selection of strategy rules. Portions of the long-term history rely on reconstructed proxy data for funds that did not exist for the full period, including DBMF, CLSE, SSO and QLD. Leveraged ETFs carry risks beyond those of their unleveraged counterparts, including the effect of daily rebalancing on returns over holding periods longer than one day. Investors should carefully consider their risk tolerance and consult with a financial advisor.

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