Millennial Nightmare: How They Got Burned in Risky ETNs
Some millennial investors who have been experimenting with exchange traded notes (ETNs) might be reassessing their decision after a recent announcement made by the asset management firm VelocityShares. Last week the company revealed its plans to delist two of its popular securities from the market – the VelocityShares 3x Inverse Crude Oil ETN (DWTI) and the VelocityShares 3x Long Crude ETN (UWTI). That will leave investors with the risk of being stuck in an extremely illiquid investment. (See also, Financial Flood: Why Money Is Pouring Into Banking ETFs.)
Millennials Love Volatility
In recent years, ETNs have made their way into the portfolios of young investors. In fact, VelocityShares’ UWTI ETN was the fifth most traded stock among millennials last year, according to research collected from the brokerage firm TD Ameritrade (AMTD). (See also, Exchange Traded Notes: An Alternative To ETFs.)
While it might sound counterintuitive, millennials love the volatile nature of ETN values. Many of them see the large movements among ETN prices as an opportunity to make substantial returns in relatively short periods of time.
Bloomberg Intelligence ETF analyst Eric Balchunas told Investopedia that the VelocityShares long crude ETN “can return in a day what it takes most ETFs a year to return. The instant gratification is why some millennials and other retail investors in general are attracted to it. [However, the] problem is it can also go down in a hurry too.”
Risk Behind ETNs
ETNs are often compared with exchange traded funds, known as ETFs. But ETNs are very different. They are essentially unsecured debt instruments that trade on the market, and are used to track and multiply the returns of a particular index by using leverage.
As an Investopedia article explains, “When you invest in an ETF, you are investing into a fund that holds the asset it tracks. That asset may be stocks, bonds, gold or other commodities, or futures contracts. An ETN is more like a bond. It's an unsecured debt note issued by an institution. Just like with a bond, an ETN can be held to maturity, bought or sold at will, and if the underwriter (usually a bank) were to go bankrupt, the investor would risk a total default.”
99% Plunge
Over the last 12 months the VelocityShares 3x Inverse Crude Oil ETN and the VelocityShares 3x Long Crude ETN have lost approximately 51% and 68% of their value respectfully. Even more worrisome is the fact that the Long Crude ETN's stock price is down more than 99% since 2014. Both ETNs will be delisted on December 8. Investors will have to dispose of their shares in the funds before that date or be stuck with them with no market to sell.
http://www.investopedia.com/news/millennial-n...isky-etns/
Some millennial investors who have been experimenting with exchange traded notes (ETNs) might be reassessing their decision after a recent announcement made by the asset management firm VelocityShares. Last week the company revealed its plans to delist two of its popular securities from the market – the VelocityShares 3x Inverse Crude Oil ETN (DWTI) and the VelocityShares 3x Long Crude ETN (UWTI). That will leave investors with the risk of being stuck in an extremely illiquid investment. (See also, Financial Flood: Why Money Is Pouring Into Banking ETFs.)
Millennials Love Volatility
In recent years, ETNs have made their way into the portfolios of young investors. In fact, VelocityShares’ UWTI ETN was the fifth most traded stock among millennials last year, according to research collected from the brokerage firm TD Ameritrade (AMTD). (See also, Exchange Traded Notes: An Alternative To ETFs.)
While it might sound counterintuitive, millennials love the volatile nature of ETN values. Many of them see the large movements among ETN prices as an opportunity to make substantial returns in relatively short periods of time.
Bloomberg Intelligence ETF analyst Eric Balchunas told Investopedia that the VelocityShares long crude ETN “can return in a day what it takes most ETFs a year to return. The instant gratification is why some millennials and other retail investors in general are attracted to it. [However, the] problem is it can also go down in a hurry too.”
Risk Behind ETNs
ETNs are often compared with exchange traded funds, known as ETFs. But ETNs are very different. They are essentially unsecured debt instruments that trade on the market, and are used to track and multiply the returns of a particular index by using leverage.
As an Investopedia article explains, “When you invest in an ETF, you are investing into a fund that holds the asset it tracks. That asset may be stocks, bonds, gold or other commodities, or futures contracts. An ETN is more like a bond. It's an unsecured debt note issued by an institution. Just like with a bond, an ETN can be held to maturity, bought or sold at will, and if the underwriter (usually a bank) were to go bankrupt, the investor would risk a total default.”
99% Plunge
Over the last 12 months the VelocityShares 3x Inverse Crude Oil ETN and the VelocityShares 3x Long Crude ETN have lost approximately 51% and 68% of their value respectfully. Even more worrisome is the fact that the Long Crude ETN's stock price is down more than 99% since 2014. Both ETNs will be delisted on December 8. Investors will have to dispose of their shares in the funds before that date or be stuck with them with no market to sell.
http://www.investopedia.com/news/millennial-n...isky-etns/
