Dear FINRA, First, let me introduce myself. I am Nathan Ayotte, and I am an individual investor with personal goals of acquiring a large average annual compound rate of return each year. Personally, I have been investing in a particular triple-leveraged ETF fund based on the Nasdaq-100 (Ticker: TQQQ) for 4 years, provided by an asset management company called ProShares. The fund is a fantastic, and its characteristics along with its stated daily performance objectives are very useful. As a leveraged ETF that tracks the underlying performance benchmark of the Nasdaq-100, I am blessed with the traits of a security that trades like a stock in a company on the open market, yet also receive the comfort of having my funds diversified across the 100 companies of the Nasdaq-100. In addition, the performance is augmented by 3X the daily performance of the Nasdaq-100 due to the swap arrangements, helping me reach my personal and family financial goals quicker. Does a fund such as this invite excessive risk unbeknownst to individual traders and investors? Does another layer of investor protection need to be enforced on investors, traders, asset management companies, and/or investment brokers? I would argue, absolutely not. The risks are clearly stated and publicized by ProShares online documents available for study and research, including the mechanics of the derivatives used to achieve returns at the stated investment objective. One document that I will explicitly reference is the Statement of Additional Information that can be found associated with any leveraged fund available on their website. See page 41 in this document in which you will find a table illustrating how a triple-leveraged ETF performs based on the annual return (y-axis) and the volatility of the underlying index fund (x-axis). The title of the table is as follows, Estimated Fund Return Over One Year When the Funds Investment Objective is to Seek Daily Investment Results, Before Fund Fees and Expenses and Leverage Costs, that Correspond to Three Times (3x) the Daily Performance of an Index. I created my own spreadsheet model to verify information on this chart specifically to help me understand the risks and potential losses associated with an economic recession where the underlying index could fall 50% or more in a short timeframe. My results matched almost exactly that of this table. Anybody, with 15 minutes of time, can do simple Google research on what the volatility rates are for each year in history of any market index such as the DOW, S&P500, or Nasdaq. For most years the average volatility rates are between 15-25%. One can easily map those volatility rate expectations with annual index returns and observe what type of annual returns one could come to expect with the tripled leveraged fund. Simply study this table in the attachment. All of this information is completely public and easy to find. With all this said, it is wise not to forget and always be mindful of a pending recession or financial crisis and factor that into ones approach and methodology of using such a leveraged fund, as we do ourselves. One last thing I wish to add, is that I have spoke with dozens of people (fund managers, friends, family, and fellow investors) over the last 4 years about leveraged funds and always the top question is about what risks are being incurred. The risks associated with such investment vehicles are transparent. Asset managers, investment brokers, everyday investors, news feeds, and investment blogs all acknowledge the basic underlying risk that a fund that increases 3X (triple leveraged ETF) the daily performance of the underlying index, will equally decline 3X the daily performance of the underlying index. Considering what I have acknowledged thus far, and much other materials and strategies that I could share that are beyond the scope of this letter regarding leveraged funds and their transparent risks, I would really like to appeal to regulators and those charged with this proposal and any of its possible revisions, to consider us as knowledgeable and thinking Americans. If such new rules and regulations are imposed, I would have to begin to question, will my family and I be stripped of such powerful investment tools accessible to us in order to reach our financial goals in the future? Will this negatively impact the asset/portfolio managers from meeting the daily performance objectives, which currently they are exceptional at doing? And if it does, will it cause greater expense ratio fees on investors and traders? If such a proposal is passed and enforced, will this open the door for similar rules and regulations be imposed on other American securities in a country I have always believed we have the right and freedom to make our own investment decisions? If the answer is yes to any of these questions, I cannot and will not support it. Im asking regulators that are considering this proposal to please weigh the matter wisely. Please listen to fellow investors and traders like myself, because such new rules and potential restrictions on amazing leveraged funds such as these, will almost certainly displace our income streams, net worth growth, and future livelihood, not to mention larger tax revenues for the country. We understand the risks involved. However, leave it to the individual investor to determine that level of risk and opportunity for themselves, and that not be left to be determined by a 3rd party member. That is not based on the freedom of investment practices I have come to enjoy as a capitalist in the United States of America. If you wish to contact me for questions or further input, I will leave my email address below, and be happy to address them. Thank you for the time to listen to my comments. Regards, Nathan Ayotte [REDACTED]
Nathan Ayotte Comment On Regulatory Notice 22-08
Dear FINRA, First, let me introduce myself. I am Nathan Ayotte, and I am an individual investor with personal goals of acquiring a large average annual compound rate of return each year. Personally, I have been investing in a particular triple-leveraged ETF fund based on the Nasdaq-100 (Ticker: TQQQ) for 4 years, provided by an asset management company called ProShares. The fund is a fantastic, and its characteristics along with its stated daily performance objectives are very useful. As a leveraged ETF that tracks the underlying performance benchmark of the Nasdaq-100, I am blessed with the traits of a security that trades like a stock in a company on the open market, yet also receive the comfort of having my funds diversified across the 100 companies of the Nasdaq-100. In addition, the performance is augmented by 3X the daily performance of the Nasdaq-100 due to the swap arrangements, helping me reach my personal and family financial goals quicker. Does a fund such as this invite excessive risk unbeknownst to individual traders and investors? Does another layer of investor protection need to be enforced on investors, traders, asset management companies, and/or investment brokers? I would argue, absolutely not. The risks are clearly stated and publicized by ProShares online documents available for study and research, including the mechanics of the derivatives used to achieve returns at the stated investment objective. One document that I will explicitly reference is the Statement of Additional Information that can be found associated with any leveraged fund available on their website. See page 41 in this document in which you will find a table illustrating how a triple-leveraged ETF performs based on the annual return (y-axis) and the volatility of the underlying index fund (x-axis). The title of the table is as follows, Estimated Fund Return Over One Year When the Funds Investment Objective is to Seek Daily Investment Results, Before Fund Fees and Expenses and Leverage Costs, that Correspond to Three Times (3x) the Daily Performance of an Index. I created my own spreadsheet model to verify information on this chart specifically to help me understand the risks and potential losses associated with an economic recession where the underlying index could fall 50% or more in a short timeframe. My results matched almost exactly that of this table. Anybody, with 15 minutes of time, can do simple Google research on what the volatility rates are for each year in history of any market index such as the DOW, S&P500, or Nasdaq. For most years the average volatility rates are between 15-25%. One can easily map those volatility rate expectations with annual index returns and observe what type of annual returns one could come to expect with the tripled leveraged fund. Simply study this table in the attachment. All of this information is completely public and easy to find. With all this said, it is wise not to forget and always be mindful of a pending recession or financial crisis and factor that into ones approach and methodology of using such a leveraged fund, as we do ourselves. One last thing I wish to add, is that I have spoke with dozens of people (fund managers, friends, family, and fellow investors) over the last 4 years about leveraged funds and always the top question is about what risks are being incurred. The risks associated with such investment vehicles are transparent. Asset managers, investment brokers, everyday investors, news feeds, and investment blogs all acknowledge the basic underlying risk that a fund that increases 3X (triple leveraged ETF) the daily performance of the underlying index, will equally decline 3X the daily performance of the underlying index. Considering what I have acknowledged thus far, and much other materials and strategies that I could share that are beyond the scope of this letter regarding leveraged funds and their transparent risks, I would really like to appeal to regulators and those charged with this proposal and any of its possible revisions, to consider us as knowledgeable and thinking Americans. If such new rules and regulations are imposed, I would have to begin to question, will my family and I be stripped of such powerful investment tools accessible to us in order to reach our financial goals in the future? Will this negatively impact the asset/portfolio managers from meeting the daily performance objectives, which currently they are exceptional at doing? And if it does, will it cause greater expense ratio fees on investors and traders? If such a proposal is passed and enforced, will this open the door for similar rules and regulations be imposed on other American securities in a country I have always believed we have the right and freedom to make our own investment decisions? If the answer is yes to any of these questions, I cannot and will not support it. Im asking regulators that are considering this proposal to please weigh the matter wisely. Please listen to fellow investors and traders like myself, because such new rules and potential restrictions on amazing leveraged funds such as these, will almost certainly displace our income streams, net worth growth, and future livelihood, not to mention larger tax revenues for the country. We understand the risks involved. However, leave it to the individual investor to determine that level of risk and opportunity for themselves, and that not be left to be determined by a 3rd party member. That is not based on the freedom of investment practices I have come to enjoy as a capitalist in the United States of America. If you wish to contact me for questions or further input, I will leave my email address below, and be happy to address them. Thank you for the time to listen to my comments. Regards, Nathan Ayotte [REDACTED]