May. 29, 2020
Sorry this is late. I just got the mailing from my broker, TDAmeritrade. They should have sent it out earlier. Due to COVID-19 delays, I hope you can consider this comment. I am an individual investor. I use leveraged and inverse funds from time to time as a speculative tool, and hope you will permit these to continue. It would be good, however, for funds to explain clearly how they maintain their tracking of the commodity or index. For instance, USO uses rolling futures, and therefore does not necessarily track the price of oil directly when there is high contango. It would be helpful if such funds gave examples of several specific scenarios, with predicted impact on their stock price, of each such scenario: such as a) high contango over several months; b) high backwardation over several months; c) slow, steady rise in the price of the underlying; d) slow, steady fall in the price of the underlying; e) stable price with minimal variation. This would give investors a better idea of how the fund would perform in each scenario, rather than just a general statement that the fund's goal is to "track" something. I do regard this "track" statement as potentially misleading to investors, since there are significant exceptions to it. Specifically, the recent performance of USO in heavy contango is not consistent with the word "tracking," due to use of rolling futures in an anomalous situation. I believe leveraged, inverse and inverse leveraged funds are helpful to speculative individual investors, but they should do what they claim to do (track an index or commodity faithfully) or else should explain up front in clear, understandable terms, with examples, of the fund's behavior under various price fluctuation scenarios of the underlying. Moreover, the funds should also explain clearly any potential dilution scenario that they might use as a contingency in order to maintain liquidity, if their fund management process required additional cash. Thank you for your consideration of my comment. Leo Bourne I hereby certify this is my comment. /s/ electronically Leo Bourne