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 (NYSEARCA:BLND)
- UBS E-TRACS Monthly 2x Leveraged ISE Cloud Computing TR ETN (NYSEARCA:LSKY)
- UBS E-TRACS Short Platinum ER ETN (NYSEARCA:PTD)
- UBS E-TRACS Next Generation Internet ETN (NYSEARCA:EIPO)
- UBS E-TRACS Monthly 2x Leveraged Next Generation Internet ETN (NYSEARCA:EIPL)
- UBS E-TRACS ISE Solid State Drive ETN (NYSEARCA:SSDD)
- UBS E-TRACS 2x ISE Solid State Drive ETN (NYSEARCA: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.
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.
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.
Max Chen contributed to this article.