A favourite fund among millennial investors is going to be delisted
Julie Verhage New York — Special to The Globe and Mail
Published Tuesday, Nov. 22, 2016 5:42PM EST
Last updated Tuesday, Nov. 22, 2016 10:46PM EST
Watch out millennials, one of your most popular investments is about to cause you some major headaches.
Earlier this year, research from online brokerage TD Ameritrade Holding Corp. showed that a particularly risky security was attracting investors from the millennial demographic far more than other age groups. Late last week, Credit Suisse AG announced its intent to delist and suspend further issuance of that very security – an exchange-traded note.
In a news release, the firm said it would shut down the VelocityShares 3x Inverse Crude Oil ETN (ticker symbol DWTI) and the VelocityShares 3x Long Crude Oil ETN (UWTI) on Dec. 8, “with a view to better aligning its product suite with its broader strategic growth plans.” Shares saw a precipitous drop over the past few years, losing 98 per cent of their value since November, 2014. While it’s not uncommon to liquidate an ETN, delisting can create major issues, Bloomberg Intelligence analyst Eric Balchunas says. “When an issuer chooses to delist and then halt creations, that can create a dangerous scenario for the investors in what is already a highly dangerous product,” he said. Since the notes will not be called, redeemed, or liquidated, owners must sell their holdings by Dec. 8 unless they want to try to do that in an extremely illiquid market, he adds.
Perhaps it’s in millennials’ best interest to be forced out of this position. The VelocityShares 3x Long Crude ETN was one of the riskiest exchange-traded products on the planet. Tied to the oil market, with triple leverage that gets reset each day, it could make huge gains when prices went up, but with a structure that causes returns to corrode over time. It also had credit risk owing to it being an exchange-trade note, which essentially makes it an unsecured debt obligation of the issuer.
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http://www.theglobeandmail.com/globe-investor...e32989032/
Julie Verhage New York — Special to The Globe and Mail
Published Tuesday, Nov. 22, 2016 5:42PM EST
Last updated Tuesday, Nov. 22, 2016 10:46PM EST
Watch out millennials, one of your most popular investments is about to cause you some major headaches.
Earlier this year, research from online brokerage TD Ameritrade Holding Corp. showed that a particularly risky security was attracting investors from the millennial demographic far more than other age groups. Late last week, Credit Suisse AG announced its intent to delist and suspend further issuance of that very security – an exchange-traded note.
In a news release, the firm said it would shut down the VelocityShares 3x Inverse Crude Oil ETN (ticker symbol DWTI) and the VelocityShares 3x Long Crude Oil ETN (UWTI) on Dec. 8, “with a view to better aligning its product suite with its broader strategic growth plans.” Shares saw a precipitous drop over the past few years, losing 98 per cent of their value since November, 2014. While it’s not uncommon to liquidate an ETN, delisting can create major issues, Bloomberg Intelligence analyst Eric Balchunas says. “When an issuer chooses to delist and then halt creations, that can create a dangerous scenario for the investors in what is already a highly dangerous product,” he said. Since the notes will not be called, redeemed, or liquidated, owners must sell their holdings by Dec. 8 unless they want to try to do that in an extremely illiquid market, he adds.
Perhaps it’s in millennials’ best interest to be forced out of this position. The VelocityShares 3x Long Crude ETN was one of the riskiest exchange-traded products on the planet. Tied to the oil market, with triple leverage that gets reset each day, it could make huge gains when prices went up, but with a structure that causes returns to corrode over time. It also had credit risk owing to it being an exchange-trade note, which essentially makes it an unsecured debt obligation of the issuer.
Follow us on Twitter: @GlobeInvestor
http://www.theglobeandmail.com/globe-investor...e32989032/
