Nate Wendler, the pen name of a hedge fund analyst friend of mine, says, "All leveraged ETFs are disasters, the math will always blow them up eventually. Buying an internet ETF right now strikes me as a great way to lose alot of money, although i can't see the holdings in this one (didnt come through in the email and when i click thru to the page it just takes me to the MLP ETN)."
Brad Zigler --- our ETF and ETN strategist/columnist and who used to head up marketing, research and education for the Pacific Exchange's (now NYSE Arca) option market and the iShares complex of exchange-traded funds --- chimes in, "Fad du jour. Especially in an ETN format."
If you are interested, here is the UBS announcement in its entirety:
New York, July 21, 2011 – UBS Investment Bank announced that today is the first day of trading on the NYSE Arca for two ETRACS Exchange Traded Notes (the “Internet IPO ETNs”) linked to the performance of the UBS Internet IPO Index (the “Index”). Investors now have the ability to gain either unleveraged or leveraged exposure to a portfolio of Internet-related companies that have gone public within the last three years, all by way of two, convenient exchange-traded securities.
Both Internet IPO ETNS are linked to a unique benchmark index that currently consists of twenty holdings representing the latest generation of Internet-related stocks such as LinkedIn, HomeAway, Pandora Media and OpenTable. Innovative index construction allows for the addition of new Internet-related companies within weeks after their IPOs, and a monthly Index rebalancing feature and 3-year age limit ensure that the companies in the Index remain up-to-date and relevant.
The ETRACs Internet IPO ETN (Ticker: EIPO) provides exposure to the performance of the Index, while the Monthly 2xLeveraged ETRACS Internet IPO ETN (Ticker: EIPL) provides a monthly compounded two times leveraged exposure to the performance of the Index.
“There’s a tremendous amount of investor interest in the current generation of Internet-related companies,” said Christopher Yeagley, Managing Director and US Head of Equity Structured Products. “And now investors have a convenient way to access these stocks in a transparent, low-cost, exchange-traded product. Moreover, as new Internet-related companies go public, investors in these ETNs will gain exposure to them within weeks after their IPOs, provided they meet certain market capitalization and other eligibility requirements.”
About the Index
The UBS Internet IPO Index (NYSE ticker symbol “NETIPO”) is intended to measure, on a total-return basis, the performance of a subset of Internet-related companies listed on the NYSE or NASDAQ that satisfy specified market capitalization and other eligibility requirements. The Index provides exposure specifically to those Internet-related companies that have been publicly traded for less than three years. Standard & Poor’s Financial Services LLC serves as the calculation agent for the Index. The top 10 holdings in the Index, as of July 7, 2011, are as follows: