UBS Investment Bank launched two exchange-traded notes (ETNs) linked to the daily performance of the Fisher-Gartman Risk Index.
The ETRACS Risk On ETN (NYSEArca: ONN - News) provides long exposure to an index comprised of long positions in 'risk on' instruments and short positions in 'risk off' instruments linked to commodities, equities, currencies and sovereign bonds. The Risk On ETN's value attempts to rise when the outlook on markets and the broader economy is positive.
The ETRACS Risk Off ETN (NYSEArca: OFF - News), due to its daily short (inverse) exposure to the Index, provides investors with long exposure to 'risk off' instruments and short exposure to 'risk on' instruments. The Risk Off ETN's value is expected to rise when the outlook on markets and the broader economy is negative and to decrease when such outlook is positive. Note that the inverse nature of the Risk Off ETN results in performance that is opposite that of the Index, thus rendering the effective exposure as long 'risk off' instruments and short 'risk on' instruments.
'Correlation between asset classes and across geographic regions has risen dramatically over the past two decades as investors move in concert in reaction to changes in the global economic outlook,' said Christopher Yeagley, Managing Director and US Head of Equity Structured Products. 'These two ETNs are designed to give investors the ability to take advantage of this in a straightforward manner: if they expect economic growth, they can purchase ONN to express a 'risk on' view, and if they don't expect growth, they can purchase OFF to express a 'risk off'
ONN's largest long weightings are to energy, stocks, and a basket of global currencies, whereas OFF's largest inverse weightings are the exact opposite.
The index underlying both the Risk On ETN and Risk Off ETN is the Fisher-Gartman Risk Index. The index consists of a mix of long and short positions in various asset classes whose overall value is determined by their combined performance. The indexes cover the following sectors: energy, agriculture, metals, equities, currencies and domestic and foreign government bonds.
The value-based target weightings for the long and short positions are 150% and 50%, respectively, and the Index is rebalanced quarterly to return the weightings to these target levels.
Both ETRACS notes charge 1.15% annually and mature in on November 27, 2041.
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