UBS rolled out two new ETNs on Thursday, debuting products that offer exposure to Internet-related companies that have recently completed an initial public offering (IPO). The new ETRACS Internet IPO ETN (EIPO) is linked to the UBS Internet IPO Index, a benchmark that consists of companies that maintain operations focused on the Internet that have gone public over the last three years. The underlying portfolio includes many of the companies that have recently completed high profile IPOs, such as Pandora Media (P), OpenTable (OPEN), and LinkedIn (LNKD). In order to be included in the underlying index, companies must fall into one of three GICS Industry designations: Internet Software & Services, Internet & Catalog Retail, or Media. UBS also launched a monthly leveraged product linked to the same index, the Monthly 2xLeveraged Internet IPO (EIPL).
|RENN||Renren, Inc. (ADR)||10.0%|
|SFUN||SouFun Holdings (ADR)||10.0%|
|As of 7/7/2011|
Because the common thread through these companies is a focus on the Internet as opposed to a specific core set of operations, the result of the methodology is a collection of stocks engaged in a wide variety of businesses. Among the 20 components of EIPO’s index are online music provider Pandora, cloud computing and hosting firm RackSpace (RAX), and social networking site LinkedIn. Many of the EIPO constituents are U.S.-based companies, but the portfolio offers some international exposure. Yandex (YNDX), the operator of Russia’s largest search engine, is one of the largest components of the underlying index, which also includes Chinese social networking site Renren (RENN) (known as the “Facebook of China”) and Chinese real estate Web site SouFun (SFUN) [also try out the Stock Exposure Tool].
It should be noted that EIPO rebalances monthly, and as such generally won’t participate in the first day of trading for new IPOs. For example, the underlying index doesn’t yet include real estate information site Zillow (Z), which jumped almost 80% after its IPO on Wednesday of this week.
Coming months are expected to bring several additional IPOs of Internet-based companies; online coupon provider Groupon and social networking site Facebook headline a robust pipeline of new tech companies poised to go public over the next 12 months.
Leveraged Option: EIPL
UBS also debuted the Monthly 2xLeveraged Internet IPO (EIPL); that ETN offers 2x monthly leveraged exposure to the same index. The monthly reset of exposure means that EIPL will deliver results corresponding to 200% of the change in the benchmark over the course of a calendar month. That differs from other leveraged exchange-traded products that reset exposure on a daily basis or that never reset leverage over the life of a note.
Both EIPO and EIPL will charge annual expenses of 0.65%.
The current lineup of ETFs now includes several options for establishing exposure to Internet-based companies. Perhaps the most popular option is the First Trust Dow Jones Internet Index Fund (FDN); that ETF includes companies that generate at least 50% of their revenue from the Web, and includes names such as Google, Amazon, and eBay. Since FDN’s portfolio consists of more established Internet-based businesses, the overlap with the recently-launched EIPO is minimal. PowerShares also offers the NASDAQ Internet Portfolio (PNQI); that ETF includes about 70 Internet-based companies, with the largest allocations to Priceline, Amazon.com, and Baidu.
First Trust also offers the U.S. IPO Index Fund (FPX), an ETF that invests in about 100 companies that have gone public within the last 1,000 days. Currently, the biggest names in that ETF include Visa, Philip Morris, and General Motors.
Disclosure: No positions at time of writing.
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