Dear FINRA: I'm a long term buy & hold retail investor of leveraged exchange traded funds (ETFs.) I am a significant shareholder of ProShare's ETF "UPRO" at owning 0.01% of all outstanding shares, and of Direxion's "TMF" owning 0.07% of all outstanding shares. If you were to consider me an institution, I'd be rank #12 of ownership in terms of shares for TMF. I have bought and held leveraged ETFs for years. I use these leveraged ETFs to make my own risk-parity and all-weather portfolio that is more diverse, more hedged, has less correlation to the S&P 500 index, and has a 1.5 to 2.0 Sharpe ratio (over 3.0 sortino), with returns that, on average, beat out the S&P 500 index year after year. Leveraged funds are important to my investment strategies. TMF helps hedge volatility of UPRO. I've obtained significant positive life altering returns from my ability to invest with prudent leveraged, a hedging strategy, and being able to put to use a lifecycle investing strategy that lets me smooth out returns over time. I'm gravely concerned that there is any thought to limiting leveraged ETFs to high net worth investors. Myself, not regulators, should be able to choose any public investment that is right for myself and my family. Public investments should be available to all of the public. I would not have been able to get to where I am today if I was restricted from investing in leveraged ETFs. I will be greatly harmed financially if I'm forced to sell my leveraged ETFs, or if I'm restricted in any way of purchasing more. I shouldn't have to go through any special processes, like passing a test, before I can invest in public securities like leveraged ETFs. I understand the risk of leverage. By using leveraged ETFs I'm able to run them in a cash account, and avoid any risk of having a margin call. If leveraged ETFs are eliminated, then I would be forced to seek the same leverage from futures, options, and possibly buying stock directly on margin, possibly with a portfolio margined account. Investing in futures, options, and outright broker margin is more risky to my financial situation than investing in a leveraged ETF. Many people don't understand that leveraged ETFs reset their leverage daily. I fully understand that they reset their leverage daily, and that may introduce more volatility drag. On the other hand, in very calm markets, the daily reset can add additional returns over longer periods of resetting leverage such as monthly reset. I greatly encourage FINRA and SEC regulators to read the story of "market timer" on the Bogleheads.org forum. "Market Timer" was an econ grad student who tried to apply leverage using broker margin, got margin called, and went to a negative 200k net worth. Had Market Timer used the ProShares 2x leveraged ETF fund Ultra S&P 500 (SSO), then Market Timer would not have been margin called, and he would not have a negative 200k net worth. Link: https://www.bogleheads.org/forum/viewtopic.php?t=5934 If leveraged ETFs are banned from retail investors in any way shape or form then retail investors will seek out leverage from other means such as margin loans. This will greatly increase risk to brokerages and the market as a whole. The only restrictions I feel FINRA should investigate are completely restricting retail investors from trading Exchange Traded Notes (ETNs.) Allowing banks to sell unsecured debt instruments on the public markets that are marketed as equivalent to an Exchange Traded Fund (ETF) is immoral [REDACTED]. There have been countless problems of ETNs having a very poor track record. Currently Barclays stopped issuing new shares for their volatility ETN product "VXX" which is creating severe tracking issues. Another ETN that significantly harmed retail investors was Credit Suisse's TVIX. Credit Suisse likewise stopped issuing shares and the ETN stopped tracking well, and a ton of people lost money because of that: https://www.forbes.com/sites/ariweinberg/2012/04/17/lessons-from-the-tvix-washout/?sh=72a9ee40a6ee Leveraged Exchange Traded FUNDS like ProShares' UPRO and Direxion's TMF have a fiduciary duty to their shareholders to run a fund in benefit for their shareholders according to the terms of their prospectuses. These public companies should not be banned or restricted in any way. These public investments should be available to ALL of the public.
Randy Martinez Comment On Regulatory Notice 22-08
Dear FINRA: I'm a long term buy & hold retail investor of leveraged exchange traded funds (ETFs.) I am a significant shareholder of ProShare's ETF "UPRO" at owning 0.01% of all outstanding shares, and of Direxion's "TMF" owning 0.07% of all outstanding shares. If you were to consider me an institution, I'd be rank #12 of ownership in terms of shares for TMF. I have bought and held leveraged ETFs for years. I use these leveraged ETFs to make my own risk-parity and all-weather portfolio that is more diverse, more hedged, has less correlation to the S&P 500 index, and has a 1.5 to 2.0 Sharpe ratio (over 3.0 sortino), with returns that, on average, beat out the S&P 500 index year after year. Leveraged funds are important to my investment strategies. TMF helps hedge volatility of UPRO. I've obtained significant positive life altering returns from my ability to invest with prudent leveraged, a hedging strategy, and being able to put to use a lifecycle investing strategy that lets me smooth out returns over time. I'm gravely concerned that there is any thought to limiting leveraged ETFs to high net worth investors. Myself, not regulators, should be able to choose any public investment that is right for myself and my family. Public investments should be available to all of the public. I would not have been able to get to where I am today if I was restricted from investing in leveraged ETFs. I will be greatly harmed financially if I'm forced to sell my leveraged ETFs, or if I'm restricted in any way of purchasing more. I shouldn't have to go through any special processes, like passing a test, before I can invest in public securities like leveraged ETFs. I understand the risk of leverage. By using leveraged ETFs I'm able to run them in a cash account, and avoid any risk of having a margin call. If leveraged ETFs are eliminated, then I would be forced to seek the same leverage from futures, options, and possibly buying stock directly on margin, possibly with a portfolio margined account. Investing in futures, options, and outright broker margin is more risky to my financial situation than investing in a leveraged ETF. Many people don't understand that leveraged ETFs reset their leverage daily. I fully understand that they reset their leverage daily, and that may introduce more volatility drag. On the other hand, in very calm markets, the daily reset can add additional returns over longer periods of resetting leverage such as monthly reset. I greatly encourage FINRA and SEC regulators to read the story of "market timer" on the Bogleheads.org forum. "Market Timer" was an econ grad student who tried to apply leverage using broker margin, got margin called, and went to a negative 200k net worth. Had Market Timer used the ProShares 2x leveraged ETF fund Ultra S&P 500 (SSO), then Market Timer would not have been margin called, and he would not have a negative 200k net worth. Link: https://www.bogleheads.org/forum/viewtopic.php?t=5934 If leveraged ETFs are banned from retail investors in any way shape or form then retail investors will seek out leverage from other means such as margin loans. This will greatly increase risk to brokerages and the market as a whole. The only restrictions I feel FINRA should investigate are completely restricting retail investors from trading Exchange Traded Notes (ETNs.) Allowing banks to sell unsecured debt instruments on the public markets that are marketed as equivalent to an Exchange Traded Fund (ETF) is immoral [REDACTED]. There have been countless problems of ETNs having a very poor track record. Currently Barclays stopped issuing new shares for their volatility ETN product "VXX" which is creating severe tracking issues. Another ETN that significantly harmed retail investors was Credit Suisse's TVIX. Credit Suisse likewise stopped issuing shares and the ETN stopped tracking well, and a ton of people lost money because of that: https://www.forbes.com/sites/ariweinberg/2012/04/17/lessons-from-the-tvix-washout/?sh=72a9ee40a6ee Leveraged Exchange Traded FUNDS like ProShares' UPRO and Direxion's TMF have a fiduciary duty to their shareholders to run a fund in benefit for their shareholders according to the terms of their prospectuses. These public companies should not be banned or restricted in any way. These public investments should be available to ALL of the public.