Subject: N/A
From: david zh

Mar. 17, 2020

Comment on SEC Proposed Rule #S7-24-15: 

To whom it may concern, 
I, as an investor in L&I funds, would like to share the reasons why I think L&I funds offer irreplaceable value and flexibility to investor like me, both as a standalone investment vehicle and as a complement to our overall personal asset management strategy. 
First of all, just like any other types of trades in our lives, ones that offer flexibility and desired value ALWAYS come with costs or trade-offs, costs specific to L&I Funds that I’m aware of and am reminding myself of everyday include: (1) Volatility decay or price decay. Needless to go to technicalities of this, it was extremely easy for me to understand that a 30% drop in price would take, not just exactly 30%, but higher than 30% come back to breakeven to prior price, in fact it takes about 43% come back to breakeven. And as this simple concept applies to daily volatility, the decay magnifies with time, the most importantly it magnifies with the turns or X’s of leverage the L&I Funds offers. Higher the turn of leverage, longer the time, the greater and more severe the decay gets, and making the breakeven of UNMANAGED holdings of such funds remotely possible. (2) Expenses are higher for L&I Funds as they usually apply derivatives like Total Return Swaps or other instruments to reach the targeted leverage turns. Swaps costs money to operate and depending on market environments those costs could fluctuate to be very high. (3) High Beta nature of L&I funds, even without the aforementioned two drags, high beta from X turns of leverage of L&I funds make them very volatile on a daily basis, again potentially making UNMANAGED holdings costly and risky. 
With these greats costs in mind, just like when we face any trade-off, I need to commit and stick to rules to counter those costs, so I can get the value I intend for, just like I need to get up early and work hard everyday to hopefully make a better living. What we need to commit and stick to is simply to MANAGE them, to MANAGE the L&I Funds, to MANAGE the exposure to them, and to MANAGE the holding period. I do not hold F&I funds for extended periods of time, especially do I not hold Inversed Funds for extended periods of time. When I hold positions in L&I Funds, I check my account a few times a week to monitor the movements of the market. When market moves in adverse directions to my holdings, I exit my positions swiftly. I remind myself everyday that levered return, always comes with equal or greater risk of levered loss. 
So these are my understanding of L&I Funds as a standalone product, on its risks and costs and how I manage them accordingly. 
Additionally, I would like to share my understanding of the flexibility of L&I Funds as a complement to my overall personal asset management strategy. 
As we all know that markets do not always move in one direction, and sometimes when it does move to the other direction, assets drop, and equities vanish. For example, I built my home equity a little bit at a time, through a long and difficult time, and it became the most important share of my personal and family asset. I will never short my home equity, not simply because there is no means to do so, I will never have the desire to do so even if I could because that is the only asset I need to preserve. So when markets faulter, so as the real estate market and my home equity. It is heartbreaking for me to watch my home value tanking and equity faltering, L&I Funds could offer the VITAL flexibility to help neutralize my overall loss, as a levered product so it does not require cash size to that of my home equity to neutralize of which is impossible for me. It also offers the sufficient liquidity for me to manage and exit my positions in just matter of seconds. Liquidity and easy execution of L&I Funds make it easy for me to manage. Importantly, yes it decays and moves fast, but I can afford my error, for a short few days, I exit of my holdings or market could come to my direction. But I cannot afford errors with futures, options, or other derivatives, they move faster, they have much lower or NO tolerance for error, my risk hedging positions could be at 100% loss at close of market, and they are much harder to manage. We, as homeowners, or owners of any fixed and illiquid assets who love to protect our equity stake in those, should have a flexible way to do instead of just sitting on uninvested cash and watching our fixed asset equity falling into jeopardy. 
We just cannot afford periodically reversals or even wipe-outs of our equity stakes that took us so long to build. 
With these words I shared, I strongly suggest to keep L&I Funds as irreplaceable and flexible investment vehicle to me and other investors. With careful management of these products, they can be very valuable investment choices, particularly vital on an overall personal asset protection and management basis.