Triple and double leveraged etfs provide a simple and understandable way to hedge positions, or without personal leverage, create a larger upside position for an investor. Without well managed, liquid etfs, such investors would have to enter into the mysterious derivative and option strategies world that are beyond most everyone's ability to actually understand. Indeed such strategies would almost never match your hedging/investment goals (and probably would expose you to substantial unanticipated risks) as well as a simple etf strategy. And such, those strategies would be far riskier than a leveraged etf. Reducing access to well managed, liquid leveraged etfs would be a step backwards.
If you invest in an S & P 500 triple bear etf to avoid triggering taxes from selling your portfolio in anticipation of a down turn and that ETF has high liquidity from a trustworthy manager, it is far less risky and way more likely to match your desired investment strategy than derivatives and/or personal leverage.
On the other hand if the etf has little liquidity and is run by an unknown manager, then yes it is probably too risky for anyone-but this is the type of decision investors make ever day in deciding not to invest in a penny stock when you can invest in a quality company.
In my view, the desire to protect the investors in this case will simply drive investors into even riskier strategies (including personal leverage) with results that are less likely to match the expectations of the investor than well managed, liquid leveraged etfs. And while the accepted wisdom is that leveraged etfs are safest if only used as a short term or even daily strategy, in my opinion the actual history of well managed, liquid etfs is that they are effective ways to hedge against the downside or increase the result of an upside strategy for much longer periods of time than currently are encouraged.
David Evaul Comment On Regulatory Notice 22-08
Triple and double leveraged etfs provide a simple and understandable way to hedge positions, or without personal leverage, create a larger upside position for an investor. Without well managed, liquid etfs, such investors would have to enter into the mysterious derivative and option strategies world that are beyond most everyone's ability to actually understand. Indeed such strategies would almost never match your hedging/investment goals (and probably would expose you to substantial unanticipated risks) as well as a simple etf strategy. And such, those strategies would be far riskier than a leveraged etf. Reducing access to well managed, liquid leveraged etfs would be a step backwards.
If you invest in an S & P 500 triple bear etf to avoid triggering taxes from selling your portfolio in anticipation of a down turn and that ETF has high liquidity from a trustworthy manager, it is far less risky and way more likely to match your desired investment strategy than derivatives and/or personal leverage.
On the other hand if the etf has little liquidity and is run by an unknown manager, then yes it is probably too risky for anyone-but this is the type of decision investors make ever day in deciding not to invest in a penny stock when you can invest in a quality company.
In my view, the desire to protect the investors in this case will simply drive investors into even riskier strategies (including personal leverage) with results that are less likely to match the expectations of the investor than well managed, liquid leveraged etfs. And while the accepted wisdom is that leveraged etfs are safest if only used as a short term or even daily strategy, in my opinion the actual history of well managed, liquid etfs is that they are effective ways to hedge against the downside or increase the result of an upside strategy for much longer periods of time than currently are encouraged.