I think you have a very difficult task with balancing the need for fairness in securities markets while making sure that bad actors do not prey on unsuspecting individual investors.
I think it is fair to say that leveraged products should not be an investors first choice as a core portfolio product, but I've noticed that many seasoned investors, such as Bill Miller, use small allocations to leveraged funds to add to their returns in their open-ended mutual funds. Of course, Mr. Miller is much more knowledgeable and experienced than I, a simple retail investor, but I would deem it highly unfair if Mr. Miller was able to use leverage, but I was not. I'm just trying to employ some simple risk on/risk off metrics with leveraged funds as a small (<3%) of my overall portfolio in order to improve returns.
I'm not sure what the test for investing in such leveraged funds as you propose would entail. I'm not sure any examination would have saved me from the glories (or rather agonies) of Netflix's last 2 earnings announcements. That is to say, while fund fees could be modeled, and 100% should be understood by investors before investing, risks are tricky things to predict. You can play several hands of poker exactly by the book, with judicious money management, and lose it all. That is why diversification is so important, but diversification adds a drag. Leveraged and inverse funds are one great way to attempt to mitigate that drag in areas where options cannot be employed.
Ryan DeVille Comment On Regulatory Notice 22-08
Dear FINRA regulators,
I think you have a very difficult task with balancing the need for fairness in securities markets while making sure that bad actors do not prey on unsuspecting individual investors.
I think it is fair to say that leveraged products should not be an investors first choice as a core portfolio product, but I've noticed that many seasoned investors, such as Bill Miller, use small allocations to leveraged funds to add to their returns in their open-ended mutual funds. Of course, Mr. Miller is much more knowledgeable and experienced than I, a simple retail investor, but I would deem it highly unfair if Mr. Miller was able to use leverage, but I was not. I'm just trying to employ some simple risk on/risk off metrics with leveraged funds as a small (<3%) of my overall portfolio in order to improve returns.
I'm not sure what the test for investing in such leveraged funds as you propose would entail. I'm not sure any examination would have saved me from the glories (or rather agonies) of Netflix's last 2 earnings announcements. That is to say, while fund fees could be modeled, and 100% should be understood by investors before investing, risks are tricky things to predict. You can play several hands of poker exactly by the book, with judicious money management, and lose it all. That is why diversification is so important, but diversification adds a drag. Leveraged and inverse funds are one great way to attempt to mitigate that drag in areas where options cannot be employed.
Thank you for taking the time to read this.