April 13, 2020
Mr. Clayton, Please reconsider the restriction on the use of inverse ETF's in the market place. I understand why they may be of concern but I feel the overall benefit far outweighs the drawbacks. I am a Registered Investment Advisor who has been in practice for over 30 years. Even as I write to you, I am using an unleveraged inverse ETF to hedge my client's portfolios. The use of some highly leveraged ETF's are not part of my practice and I find no place for them. However, carefully using non-leveraged inverse ETF's are very effective as I am able to stabilize the value and account balance of all my clients without having to sell existing positions that we want to hold for long periods. the general stock market will have a normal 10% correction about once a year on average. Being able to use inverse ETF's from time to time is so important to be able to keep our longterm positions in place and still provide an effective hedge in the event of a market correction. Selling existing positions to reduce account volatility is usually not financially wise over the long term, additionally, it will ensure unfavorable tax treatment for the client. Today I have been able to keep the core longterm positions in my client accounts and drastically reduce the losses being experienced by millions of Americans.
Over the past decade, many Americans did not return to the stock market after the last recession where they say their account fall over 50% in value. If we lose the tools to help our clients minimize risk and account drawdowns, many Americans will leave the markets never to return. Using inverse ETF's allows me to reduce account volatility and improve returns for my clients. Additionally, the fear that comes with these types of a severe market correction as we are seeing now, is the very thing that increases overall market volatility. Please understand that inverse ETF's provide such a valuable tool to the investment professional. Losing it would be most detrimental to the public investor. There are no doubt abuses in the marketplace but that is far and wide the exception. Some tighter regulations for the use of Inverse ETF's that use 3X leverage may be in order, but otherwise, please allow us the tools to protect our client's investment and lifetime savings accounts.