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RBS and UBS Launch ETNs
September 19, 2011
In spite of the shocking news that UBS AG (NYSE: UBS) is facing $2.3 billion in trading losses, the company still managed to launch two exchange-traded notes (ETNs) last week. The new notes are the UBS ETRACS ISE Solid State Drive Index ETN (NYSEArca: SSDD) and the ETRACS Monthly 2x Leveraged ISE Solid State Drive Index ETN (NYSEArca: SSDL).
Both notes are linked to the ISE Solid State Drive Index which is an equal weighted allocation across the technology drive manufacturer and component manufacturer sector. Stocks within the index are reviewed quarterly for eligibility, and the weights are re-set according to that methodology. The index was created on August 26, 2011 and has no performance history prior to that date.
SSDL will offer double monthly leverage, which may result in performance that is greater or less than the underlying index depending on various market factors.
These particular UBS ETNs will have no planned dividends or distributions and they charge annual expenses of 0.65%.
The ETNs are senior unsecured debt obligations of UBS, and are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the ETNs, including any payment at maturity or call, upon acceleration or upon early redemption, depends on the ability of UBS to satisfy its obligations as they come due. As a result, the actual and perceived creditworthiness of UBS will affect the market value,
Other ETN Launches
The Royal Bank of Scotland (NYSE: RBS) unveiled the RBS Oil Trendpilot ETN (NYSEArca: TWTI). The Index uses a proprietary trend-following strategy to provide exposure to either the RBS 12-Month Oil Total Return Index (USD) or the yield on a hypothetical notional investment in 3-month U.S. Treasury bills. The twelve (12) futures contracts comprising the benchmark index on any given day will be the futures contract scheduled to expire in the immediately following calendar month and futures contracts scheduled to expire in each of the eleven months thereafter. The index is rebalanced on a monthly basis so that each of the twelve (12) futures contracts is equally weighted upon each rebalancing. TWTI charges annual fees of 1.10%.
Fundamental Corporate Bond ETF
Invesco PowerShares Capital Management debuted the PowerShares Fundamental Investment Grade Corporate Bond Portfolio (NYSEArca: PFIG). The fund provides exposure to corporate bonds with maturities ranging from 1-10 years and PFIG is expected to issue monthly distributions.
“We believe the PowerShares Fundamental Investment Grade Corporate Bond Portfolio represents an attractive alternative to market-cap-weighted fixed-income portfolios and provides investors the potential for improved risk-adjusted returns,” said Ben Fulton, Invesco PowerShares managing director of global ETFs.
Traditional bond indexes generally use some form of market-cap weighting by which constituent weights are a function of both the amount of debt issued and the debt’s current price. This approach results in greater weights being assigned to issuers that have issued more debt.
In contrast, PFIG’s approach assigns weights based on factors that are indicative of an issuer’s ability to service debt. The methodology uses four fundamental measures of company size: book value, sales, dividends and cash flow; constituent weights are reset annually. This approach severs the link between weight, price and indebtedness, thereby reducing the potential for return drag inherent in cap-weighted indexes.
PFIG charges annual expenses of 0.22%.
ETF Closures
Javelin Investment Management announced that the last day of trading in its JETS Contrarian Opportunities Index Fund (symbol: JCO) will be September 29, 2011. The fund failed to attract sufficient assets and investor interest.
"With many investors looking for new investing tools, we believe that contrarian and other investment styles will eventually be well represented in the ETF market," says Javelin president and founder Brint Frith, "we look forward to building on our experience."
Shareholders who do not sell their Fund shares by September 29, 2011 will have their shares automatically redeemed on October 11, 2011, the Fund’s last day of operations.
In related news, InvescoPowerShares will be liquidating the Active AlphaQ Fund (NYSEArca: PQY) and Active Alpha Multi-Cap Fund (NYSEArca: PQZ). The final trading day for both ETFs will be September 30, 2011. |
