UBS, the Swiss-based bank known for its private client services, is redeeming all but one of its VIX-related ETNs, as the securities were not getting the traction the firm had hoped—in part because of the presence of a number of VIX-related ETFs that are now on the market.
The 12 ETNs it will redeem—six long and short pairs in all—and their respective assets as of Sept. 7 are as follows:
- Etracs Daily 1-Month S'P 500 VIX Futures ETN due Sept. 6, 2041 (VXAA), $2.73 million
- Etracs Daily 2-Month S'P 500 VIX Futures ETN due Sept. 6, 2041 (VXBB), $3.77 million
- Etracs Daily 3-Month S'P 500 VIX Futures ETN due Sept. 6, 2041 (VXCC), $5.03 million
- Etracs Daily 4-Month S'P 500 VIX Futures ETN due Sept. 6, 2041 (VXDD), $5.41 million
- Etracs Daily 5-Month S'P 500 VIX Futures ETN due Sept. 6, 2041 (VXEE), $6.17 million
- Etracs Daily 6-Month S'P 500 VIX Futures ETN due Sept. 6, 2041 (VXFF), $7.00 million
- Etracs Daily Short 1-Month S'P 500 VIX Futures ETN due Sept. 6, 2041 (AAVX), $19.74 million
- Etracs Daily Short 2-Month S'P 500 VIX Futures ETN due Sept. 6, 2041 (BBVX), $16.54 million
- Etracs Daily Short 3-Month S'P 500 VIX Futures ETN due Sept. 6, 2041 (CCVX), $15.00 million
- Etracs Daily Short 4-Month S'P 500 VIX Futures ETN due Sept. 6, 2041 (DDVX), $14.71 million
- Etracs Daily Short 5-Month S'P 500 VIX Futures ETN due Sept. 6, 2041 (EEVX), $12.70 million
- Etracs Daily Short 6-Month S'P 500 VIX Futures ETN due Sept. 6, 2041 (FFEX), $11.29 million
The suite of products appear to have been a bit too exquisitely calibrated in a pocket of the exchange-traded product universe that is dominated by the iPath S'P 500 VIX Short-Term Futures ETN (VXX) and, increasingly, by ETFs such as the VelocityShares Daily 2X VIX Short Term ETN (TVIX).
Overall, the redemptions will bring the number of exchange-traded products that have closed so far this year to 80, easily surpassing the 30 that closed last year and the 59 that shuttered in 2008—the latter a year considered rough in the ETF industry because of the market collapse.
Industry sources say the high number of product closures this year suggests both an industry that is maturing as well as a cautious environment brought on by the market volatility that has prevailed since the financial crisis first reared its head more than five years ago.
Keeping An ETN That Matters
But significantly, UBS decided to leave open the Etracs Long-Short S'P 500 VIX Futures ETN (XVIX), a security designed to take advantage of the steepness of the short end of the VIX curve.
Specifically, the VIX futures curve is frequently in a steep contango, meaning that when exposure is shifted from a soon-to-expire contract to one further out on the futures curve, the cost of the new contract is more than what the expiring one is worth.
This phenomenon cuts into returns, significantly over time, and securities such as XVIX are designed to minimize the corrosive effects of contango.
The ETN has $18.6 million in assets.
Mechanics Of The Redemptions
The company said in a press release that the call settlement date for the affected ETNs will be Wednesday, Sept. 12, 2012.
It said the call settlement amount will be the current principal amount of the securities as of Sept. 7, 2012.
UBS AG will pay investors holding the ETNs as of 5 p.m. ET on Sept. 12, 2012.
The press release the company circulated was dated Aug. 31, 2012.
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