Subject: File No. S7-24-15
From: Gerald Whitfill

Mar. 04, 2020


I am opposed to the proposed rule regarding leveraged/inverse funds.
The proposed rule  appears to be a solution in search of a problem.   The proposal states “the losses suffered by (one particular) fund and in the other examples we discuss are extreme.  Funds rarely suffer such large and rapid losses” (page 17).   There were only a few examples, and I did not find any statistics stating the extent of funds that liquidated due to the use of leveraged/inverse strategies.
“Investors ... who may not evaluate their portfolio frequently may experience large and unexpected losses or experience results different from what they anticipated” (page 178).  This is not true if the investor read the prospectus and disclosures provided by the fund. The prospectus outlines clearly the risk of leveraged funds and the impact of volatility on leveraged funds.
The funds “are generally intended as short term trading tools” (page 177).  “Some segment of investors may hold leveraged/inverse funds for long periods of time which can lead to significant losses under certain circumstances” (page 179).   It is not the length of time the fund is held that causes significant loss, it is the investor not monitoring his portfolio frequently.  An investor that purchased the funds the day before a market downturn will incur significant losses just as an investor that held the funds long term will experience significant losses in a market downturn.  While these funds are not buy and hold investments, they are in fact long term investments.  The  returns for TQQQ, a 3x leveraged fund, as of 02/28/2020 are more than 33% annually for the 1, 3, 5, and 10 year periods.. These are certainly long term investments.  Simply using a mental trailing stop and frequently evaluating the portfolio would allow the investor to sell the fund before suffering tremendous losses. 
Setting financial criteria before allowing investment in leveraged/inverse funds is unreasonable.  The opportunities these funds provide should not be limited only to the wealthy.  Individual investors are best at determining what is the most appropriate investment for themselves, not a government agency.  All investments require a certain level of knowledge.  The belief that restricting or excluding these funds from certain investors because they do not have and cannot obtain this knowledge is incorrect.  In addition, restrictions on the sale of these funds could result in reduced availability from major brokerage firms.  This would affect all investors in these funds.
Leveraged/inverse funds can be used to reduce risk.  For a portfolio comprised of 33% S&P 500 3x fund and 67% US Treasury Bonds, the balance of the portfolio is 67% US Treasury Bonds if the leveraged S&P 500 fund value goes to zero.  Risk is reduced even though the portfolio is 100% invested in the S&P 500.  Not to mention an investor that is monitoring his portfolio would sell the leveraged fund before it goes to zero.  On the other hand a portfolio comprised of 100% unleveraged S&P 500 index fund (only) could decline by 50% or more in a bear market resulting in a portfolio balance of 50% S&P 500.  An inverse fund can be used to hedge the risk of a stock portfolio comprised of positions an investor prefers not to sell.  
In summary: Bold, clear disclosure is the best means of informing investors of investment risk for leveraged/inverse funds.  These funds should not be limited to purchase only by the wealthy.  Investors should be aware of the risk of these funds if they reviewed the first several pages of the prospectus.  While the funds are not buy and hold investments, they can be used long term.  The funds can be used to reduce risk in a portfolio. These funds play an important part of my portfolio both from an opportunity standpoint as well as risk management.