HOLDRS Making Transition To Market Vector ETFs

Includes: BBH, OIH, PPH, RKH, RTH, SMH
by: Tom Lydon

Van Eck Global and Bank of America subsidiary Merrill Lynch reached an accord on six HOLDRs in August, and now, the transition from the Merrill Lynch HOLDRs to Market Vector exchange traded funds is underway.

An exchange offer for the HOLDRS commenced on Nov. 11 and will run till 11:00 am Eastern time on Dec. 20, according to a Deutsche Bank research note. The current HOLDRS will cease trading 30 minutes before the expiration date.

Alternatively to accepting the exchange offer, investors can opt to default, participate in other offers, sell their stakes in HOLDRs or cancel their HOLDRs. Investors who opt to take no action and default will be able to cancel their holdings in round-lots directly with the trustee or take cash from the liquidation of the trust assets.

On Dec. 21, 2011, the re-branded Market Vectors ETFs will begin trading:

  • Market Vectors Biotech ETF (NYSEARCA:BBH)
  • Market Vectors Money-Center Bank ETF (NYSEARCA:RKH)
  • Market Vectors Oil Services ETF (NYSEARCA:OIH)
  • Market Vectors Pharmaceutical ETF (NYSEARCA:PPH)
  • Market Vectors Retail ETF (NYSEARCA:RTH)
  • Market Vectors Semiconductor ETF (NYSEARCA:SMH)

Due to their legal structure, HOLDRs and ETFs may differ in areas like portfolio management, diversification, fees/expenses, underlying shares voting rights and creation/redemption process, among others.

“We believe that the new ETFs should provide a better representation of each of the respective target markets than what the HOLDRS with their current limitations can provide,” according to Deutsche Bank.

“In addition, some of the new ETFs may present considerable risk/return differences as compared to those of the six HOLDRS,” Deutsche Bank analysts said in the report. “Most of these differences arise from diversification issues affecting the HOLDRS which the new ETFs will aim to overcome.”

Max Chen contributed to this article.