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Van Eck to Convert 6 Merrill Lynch HOLDRS to ETF Structure
October 3, 2011
Van Eck Global has made a bid to convert the assets for six Merrill Lynch-sponsored HOLDRS into its Market Vectors ETF lineup. The HOLDRS affected by this proposed exchange are the Oil Services (NYSEArca: OIH), Semiconductor (NYSEArca: SMH), Pharmaceutical (NYSEArca: PPH), Biotech (NYSEArca: BBH), Retail (NYSEArca: RTH), and Regional Bank (NYSEArca: RKH).
Van Eck expects the exchange offers to be launched in the fourth quarter of 2011 and to be consummated later that same quarter. The exchange offers will require proactive action on the part of individual HOLDRS investors. By participating in the exchange offers, HOLDRS investors will authorize the conversion of the stocks in the HOLDRS Trusts into a diversified basket of stocks that align with the indices underlying the new Market Vectors ETFs.
Conversion Details
The transaction is structured to be an equal value exchange. This means the value of the shares of the new ETF received by investors participating in the exchange will be expected to have the equivalent value to the tendered HOLDRS (based on the underlying securities as of the close of trading on the date the exchange offers expire). Investors participating in the exchange offers will not bear any costs relating to the exchange transaction, although they may be subject to fees charged by their financial intermediaries.
As of the close of trading on September 29, 2011, the six HOLDRS subject to Van Eck’s exchange offers had approximately $3.3 billion in aggregate assets and a combined 30-day average daily trading volume of approximately 19.54 million shares.
Shortcomings of HOLDRS
Unlike traditional index ETFs, the HOLDRS product structure is rigid and portfolio holdings are not periodically rebalanced to reflect changes within an industry sector. As a result, certain sector HOLDRS are poor barometers for the industry sectors they propose to follow. For example, the Oil Services HOLDRS Trust, created in 2001, does not include some of today’s important companies within the industry such as FMC Technologies (NYSE: FTI) and SeaDrill Limited (NYSE: SDRL).
New Market Vectors ETFs
The new Market Vector ETFs will be linked to indexes that own the most liquid stocks within that particular industry. The top 25 constituents based on full market capitalization and three-month average daily trading volume are included in each index. The indexes include companies that derive most of their revenues from the relevant industry; individual company weightings are capped at 20%. The indexes will be reviewed semi-annually, with weighting caps applied quarterly.
The corresponding ticker symbols and indexes are listed below:
OIH – U.S Listed Oil Services 25 Index
SMH – U.S. Listed Semiconductor 25 Index
PPH – U.S. Listed Pharmaceutical 25 Index
BBH – U.S. Listed Biotech 25 Index
RTH – U.S. Listed Retail 25 Index
RKH – U.S. Listed Bank and Brokerage 25 Index
Annual expense ratios for these six Market Vectors will be capped at 0.35%. |
