Subject: File No. S7-24-15
From: Matthew S Crouse, CFA
Affiliation: Adjunct Professor of Finance, Westminster College

January 31, 2020

My research article "Leveraged Investment Products: Monthly Rebalancing Boosts Performance, but Tail Risk Looms," recently published in the Journal of Index Investing, is supportive of increased regulation of leveraged ETFs, as it is clear that many individual investors (and even some academics and financial advisors) don't fully understand their substantial long-term risks.

For copyright reasons, I am not allowed to attach my publication, but I can send it to you on request (or you may request a copy from the Journal of Index Investing). I have pasted the abstract of it below.

I am also happy to answer any questions that you may have on this topic.

Best regards,
Matt Crouse, CFA

Volatility reduces any investments compound rate of return in what is termed volatility drag, a drawback of leveraged investment products (LIPs). In recent years Version 2.0 LIPs that reset leverage monthly (monthly LIPs) have been created to lessen the impact of drag. We show that monthly LIPs improve returns because markets are less volatile on a monthly timescale. Nevertheless, monthly LIPs remain problematic as buy-and-hold investments because of the risks of large drawdowns and catastrophic losses. We characterize these risks through higher-order moments and identify attributes of LIPs to mitigate these risks to benefit both LIP investors and LIP sponsors.