The exchange traded fund industry has churned out over 1,400 products, but not every investment idea is a clear cut winner. UBS-Keyinvest recently announced that it will redeem seven of its E-TRACS exchange traded notes that have struggled to gain investment interest.
According to a press release, UBS will pull the plug on seven ETNs and will pay investors holding the affected securities as of 5:00pm EST on June 6, 2013 the applicable settlement amount. ETNs affected include:
- UBS E-TRACS DJ-UBS Commodity Index 2-4-6 Blended Futures ETN (BLND)
- UBS E-TRACS Monthly 2x Leveraged ISE Cloud Computing TR ETN (LSKY)
- UBS E-TRACS Short Platinum ER ETN (PTD)
- UBS E-TRACS Next Generation Internet ETN (EIPO)
- UBS E-TRACS Monthly 2x Leveraged Next Generation Internet ETN (EIPL)
- UBS E-TRACS ISE Solid State Drive ETN (SSDD)
- UBS E-TRACS 2x ISE Solid State Drive ETN (SSDL)
Unlike ETFs, an ETN is essentially an uncollateralized loan to an investment bank and leaves investors open to potential credit risks of the issuing bank – if the bank goes under, there is no guarantee that the ETN investor will receive all of his or her principle back. [Exchange Traded Notes]
Typically, ETF providers notify investors a couple weeks ahead of a closure, and the ETF would still operate as usual up to the close. As a fund closes, investors should use limit orders to exit the fund. However, if you hold onto the fund until it is liquidated, the investor will receive a full cash value equivalent to their exposure to the underlying holdings at the end price. [The Number of ETF Closures is Rising]
Potential investors should be aware that in rare cases a “termination fee,” which included legal fees and administration costs, could be tacked on if you hold on to an ETF until the bitter end. [Why ETFs Close]
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.