ETF Stats For July 2016: ETNs With Unpredictable Uncapped Fees

ETF Stats For July 2016: ETNs With Unpredictable Uncapped Fees

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Date21 Aug 2016
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Sixteen launches and two closures in July increased the overall product count to 1,945 (1,739 ETFs and 206 ETNs). Assets climbed by 5.3% to $2.37 trillion, driven primarily by market gains. August is shaping up to be the worst month ever for ETF mortality, with 41 ETFs and ETNs slated for closure during the month.

VelocityShares rolled out three new ETNs in July (issued by UBS) that are linked to indexes tracking various volatility strategies. According to the prospectus, the ETNs have a daily investor fee of 1.30% (divided by 365) and a futures spread fee that “is uncapped, is based on market inputs that are beyond UBS’s control, and may vary significantly from day to day.”

This is wrong on multiple fronts. First, ETNs do not own anything-they are unsecured debt obligations of the issuer. Therefore, the ETNs do not have any futures transactions fees-only the issuer does if it chooses to hedge its position. Second, UBS included a seven-page description of this fee, plus “Annex C – Hypothetical Calculations of the Futures Spread Fee” that, based on three scenarios, claims the futures spread fee will only be 0.006% to 0.007%. However, it fails to point out that these are daily fees-not an annual expense ratio.

Assuming 252 business days per year, this daily fee works out to be 1.51% to 1.76% per annum on top of the 1.30% investor fee. Regulators were apparently asleep at the wheel as VelocityShares and UBS slipped this one by them. These ETNs own nothing, but by including these uncapped expenses, UBS has shifted all of the hedging cost risks off itself and onto (unaware) shareholders.

This isn’t the first time UBS has tried to bury expenses by stating them in periods other than per annum. Back in 2011, UBS introduced VIX ETNs with a 1.35% annual tracking fee and a 0.077% weekly event risk hedging cost, compounded daily. That worked out to be about a 5.35% annual expense ratio that also slipped by regulators.

The $118 billion increase in U.S.-listed ETF and ETN assets for July was composed of $43.7 billion of net inflows and $74.6 billion in market gains. The quantity of funds with more than $10 billion in assets held steady at 55 and control 60.3% of industry assets. Just 853 funds have asset levels above $100 million, but these 43.9% of listings hold 99.4% of the assets. The majority-the other 1,092 ETFs and ETNs-are fighting for the remaining 0.6% of assets.

July 2016 Month End ETFs ETNs Total
Currently Listed U.S. 1,739 206 1,945
Listed as of 12/31/2015 1,644 201 1,845
New Introductions for Month 12 4 16
Delistings/Closures for Month 2 0 2
Net Change for Month +10 +4 +14
New Introductions 6 Months 114 12 126
New Introductions YTD 128 12 140
Delistings/Closures YTD 33 7 40
Net Change YTD +95 +5 +100
Assets Under Management $2,346 B $24.5 B $2,371 B
% Change in Assets for Month +5.3% +2.6% +5.3%
% Change in Assets YTD +11.9% +14.0% +11.9%
Qty AUM > $10 Billion 55 0 55
Qty AUM > $1 Billion 265 5 270
Qty AUM > $100 Million 815 38 853
% with AUM > $100 Million 46.9% 18.5% 43.9%
AUM Flows for Month $42.95 B $0.79 B $43.74 B
AUM Flows YTD $116.2 B $2.3 B $118.5 B
Monthly $ Volume $1,330 B $53.8 B $1,384 B
% Change in Monthly $ Volume -26.0% -36.8% -26.5%
Avg Daily $ Volume > $1 Billion 9 0 9
Avg Daily $ Volume > $100 Million 86 5 91
Avg Daily $ Volume > $10 Million 329 10 339
Actively Managed ETF Count (w/ change) 151 +2 month +14 YTD
Actively Managed AUM $26.4 B +3.8% month +15.0% YTD
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Data sources: Daily prices and volume of individual ETPs from Norgate Premium Data. Fund counts and all other information compiled by Invest With An Edge.

New products launched in July (sorted by launch date):

  1. AdvisorShares Cornerstone Small Cap ETF (NYSEARCA:SCAP), launched 7/7/16, is an actively managed ETF seeking to provide total return through long-term capital appreciation and current income. It invests in a diversified group of U.S.-traded equity securities and attempts to benefit from the volatility of small cap stocks by participating in upside volatility while reducing exposure to downside volatility. Its expense ratio is capped at 0.90% (SCAP overview).
  2. Global X Conscious Companies ETF (NASDAQ:KRMA), launched 7/12/16, intends to track the Concinnity Conscious Companies Index, which is designed to invest in well-managed U.S. companies that achieve financial performance in a sustainable and responsible manner by exhibiting positive environmental, social, and corporate governance (“ESG”) characteristics. The ETF has an expense ratio of 0.43% (KRMA overview).
  3. Credit Suisse X-Links Monthly Pay 2xLeveraged Mortgage REIT ETN (NYSEARCA:REML), launched 7/13/16, is an exchange-traded note (“ETN”) that provides monthly-compounded 2x leveraged long exposure to the price return version of the FTSE NAREIT All Mortgage Capped Index. The ETNs pay a variable monthly coupon linked to the net cash distributions. It will assess owners a tracking rate of 0.50% per annum and a financing rate pegged at 3-month LIBOR plus 0.80% per annum. Therefore, the total expense ratio will be at least 1.30% (REML overview).
  4. Cambria Emerging Shareholder Yield ETF (BATS:EYLD), launched 7/14/16, tracks an index of emerging-market stocks with high cash distribution characteristics. It holds the 100 companies (equally weighted) with the best-combined rank of dividend payments and net stock buybacks, which are the key components of shareholder yield. The underlying index also screens for value, quality, and for companies that demonstrate low financial leverage. EYLD has an expense ratio of 0.69% (EYLD overview).
  5. FlexShares STOXX Global ESG Impact Index Fund (NASDAQ:ESGG), launched 7/14/16, tracks an underlying index of global developed country companies based on ESG key performance indicators. It tilts the portfolio toward companies with higher total aggregate ESG scores and uses constraints in an effort to minimize overall risk. The expense ratio is 0.42% (ESGG overview).
  6. FlexShares STOXX US ESG Impact Index Fund (NASDAQ:ESG), launched 7/14/16, tracks an underlying index of U.S. companies based on ESG key performance indicators. It tilts the portfolio toward companies with higher total aggregate ESG scores and uses constraints in an effort to minimize overall risk. The expense ratio is 0.32% (ESG overview).
  7. PowerShares DWA Momentum & Low Volatility Rotation Portfolio (NASDAQ:DWLV), launched 7/14/16, is a fund-of-funds ETF that tracks an index designed to gain exposure to U.S. or international equity markets. The universe is currently limited to the eight PowerShares momentum and low-volatility ETFs, and it may also hold up to a 100% cash position (via 1- to 6-month U.S. Treasury bills) when equity securities are out of favor. The underlying index and ETF perform monthly evaluations for potential rebalancing and reconstitution. DWLV has an expense ratio of 0.52% (DWLV overview).
  8. VanEck Vectors EM Investment Grade + BB Rated USD Sovereign Bond ETF (NYSEARCA:IGEM), launched 7/14/16, tracks an underlying index composed primarily of investment-grade U.S. dollar-denominated bonds issued by emerging-markets governments. Its expense ratio is capped at 0.40% (IGEM overview).
  9. VelocityShares VIX Short Volatility Hedged ETN (NYSEARCA:XIVH), launched 7/14/16, intends to provide a net short position in VIX futures. It is one of the three volatility-strategy ETNs that hope to relieve investors of the need to actively trade underlying positions on a daily basis. XIVH is linked to the total return version of the S&P 500 VIX Futures Short Volatility Hedged Index TR-Short Term. Each of the 13 subportfolios has a target exposure of 10% to a 2x leveraged long position and a 90% unleveraged short position, which is intended to result in a net short position in VIX futures. In addition to an investor fee of 1.30%, XIVH will charge an unpredictable and uncapped futures spread fee (XIVH overview).
  10. VelocityShares VIX Tail Risk ETN (NYSEARCA:BSWN), launched 7/14/16, intends to result in a net long position in VIX futures. It is one of the three volatility-strategy ETNs that hope to relieve investors of the need to actively trade underlying positions on a daily basis. BSWN is linked to the total return version of the S&P 500 VIX Futures Tail Risk Index TR-Short Term. Each of the 13 subportfolios has a target exposure of 45% to a 2x leveraged long position and a 55% unleveraged short position, which is intended to result in a net long position in VIX futures. In addition to an investor fee of 1.30%, BSWN will charge an unpredictable and uncapped futures spread fee (BSWN overview).
  11. VelocityShares VIX Variable Long/Short ETN (NYSEARCA:LSVX), launched 7/14/16, intends to provide a net long or net short exposure to VIX futures, with the goal of having a net long exposure during periods of high volatility and a net short exposure during periods of low volatility. It is one of the three volatility-strategy ETNs that hope to relieve investors of the need to actively trade underlying positions on a daily basis. LSVX is linked to the total return version of the S&P 500 VIX Futures Variable Long/Short Index TR-Short Term. Each of the 13 subportfolios has a target exposure of 33.3% to 2x leveraged long position and a 66.7% unleveraged short position, which is intended to result in a net long or net short exposure to VIX futures, depending on market conditions. In addition to an investor fee of 1.30%, BSWN will charge an unpredictable and uncapped futures spread fee (LSVX overview).
  12. The 3D Printing ETF (BATS:PRNT), launched 7/19/16 by ARK Investments, intends to track the Solactive Total 3D-Printing Index, which is composed of equity securities and depositary receipts of companies from the U.S., non-U.S. developed markets, and Taiwan that are engaged in 3D printing-related businesses. The universe of business lines includes 3D printing hardware, computer-aided design, 3D printing simulation software, 3D printing centers, scanning and measurement, and 3D printing materials. Its largest allocations will include 50% to printing hardware, 30% to software, and 13% to service centers. PRNT has an expense ratio of 0.66% (PRNT overview).
  13. Direxion Daily European Financials Bull 2x Shares (NYSEARCA:EUFL), launched 7/27/16, seeks daily investment results of 200% of the performance of the MSCI Europe Financials Index, which represents securities of large-capitalization and mid-capitalization companies across developed market countries in Europe. Its expense ratio is capped at 0.80% (EUFL overview).
  14. Direxion Daily Gold Miners Index Bear 1x Shares (NYSEARCA:MELT), launched 7/27/16, seeks daily investment results of 100% of the inverse (or opposite) of the performance of the NYSE Arca Gold Miners Index. It consists of publicly traded companies that operate globally in both developed and emerging markets that are involved primarily in the mining of gold and silver. Its expense ratio is capped at 0.45% (MELT overview).
  15. WBI Tactical Rotation Shares (NYSEARCA:WBIR), launched 7/27/16, is an actively managed fund-of-funds ETF designed to take advantage of opportunities around the globe while seeking to protect capital during unfavorable market conditions. The ETF may invest in any global asset class, geographic region, country, index, sector, industry, currency, or cash equivalents. A proprietary model assesses factors and conditions likely to affect the potential risk-adjusted return of the investment opportunities under consideration. WIBR comes with an expense ratio of 1.43% (WBIR overview).
  16. Legg Mason International Low Volatility High Dividend ETF (BATS:LVHI), launched 7/28/16, tracks a multifactor underlying index composed of equity securities of developed markets outside the United States with relatively high yield, low price, and low earnings volatility. The fund hedges its exposure to fluctuations between the U.S. dollar and other international currencies. LVHI has an expense ratio of 0.40% (LVHI overview).

Product closures in July and last day of listing:

  1. Falah Russell-IdealRatings U.S. Large Cap (NYSEARCA:FIA), 7/14/16
  2. Direxion Daily Total Market Bear 1x Shares (NYSEARCA:TOTS), 7/15/16

Product changes in July:

  1. AdvisorShares TrimTabs Float Shrink ETF (NYSEARCA:TTFS) changed its subadvisor and was renamed the AdvisorShares Wilshire Buyback ETF (TTFS) effective July 1 (TrimTabs response).
  2. Effective July 1, 2016, iShares changed from Barclays to ICE U.S. Treasury Bond Index Series indexes for iShares Core U.S. Treasury Bond ETF (NYSEARCA:GOVT), iShares Short Treasury Bond ETF (NYSEARCA:SHV), and iShares 10-20 Year Treasury Bond ETF (NYSEARCA:TLH).
  3. Morgan Stanley announced it would not issue any more notes for five of its ETNs effective July 1, thereby rendering them broken products without a functioning creation mechanism. The affected products are Morgan Stanley Cushing MLP High Income ETN (NYSEARCA:MLPY), VanEck Vectors Double Long Euro ETN (NYSEARCA:URR), VanEck Vectors Double Short Euro ETN (NYSEARCA:DRR), VanEck Vectors Chinese Renminbi/USD ETN (NYSEARCA:CNY), and VanEck Vectors Indian Rupee/USD ETN (NYSEARCA:INR).
  4. The SPDR Quality Mix suite of 13 ETFs were rebranded as the SPDR StrategicFactors suite effective July 15.
  5. AccuShares Spot CBOE VIX Down Shares (NASDAQ:VXDN) received a regular distribution of 1.610701 VXUP shares and 1.610701 VXDN shares, and a corrective distribution of one VXUP share effective July 20.
  6. AccuShares Spot CBOE VIX Up Shares (NASDAQ:VXUP) received a corrective distribution of one VXDN share effective July 20.
  7. BlackRock iShares performed forward splits on 11 of its ETFs (ITOT, IUSG, IUSV, IUSB, ISTB, IBCC, IBCD, IBCE, IBDB, IBDC, and IBDD) effective July 22.
  8. ProShares effected ETF splits on July 22. UGE, UPW, CMD, UXI, and KOLD underwent forward splits, and GDXS, VIXY, and UVXY had reverse splits.

Announced product changes for coming months:

  1. EGShares EM Strategic Opportunities (NYSEARCA:EMSO) is changing its ticker symbol back to EMDD. Back on March 1, the fund changed both its name and ticker from EGShares Emerging Markets Domestic Demand (EMDD) to EGShares EM Strategic Opportunities (EMSO). It is now reverting to its previous ticker symbol while keeping its newer name.
  2. Huntington US Equity Rotation Strategy ETF (NYSEARCA:HUSE) will drop the Huntington prefix and change its name to US Market Rotation Strategy (HUSE), effective August 8.
  3. VelocityShares Daily 2x VIX Short Term ETN (NASDAQ:TVIX) will effect a 1-for-25 reverse split effective August 9.
  4. AccuShares Spot CBOE VIX Down Shares will receive a corrective distribution payable in shares of VXUP effective August 17.
  5. AccuShares Spot CBOE VIX Up Shares will receive a corrective distribution payable in shares of VXDN effective August 17.
  6. BlackRock plans to close and liquidate 10 iShares ETFs. August 23 will be the last day of listed trading for EEML, EMHZ, IEIL, IELG, IEIS, IESM, ITIP, GTIP, QLTB, and QLTC.
  7. SPDRs is closing 12 of its ETFs with August 24 being their last day of listed trading. The closing funds are EMBB, SMCD, IJNK, EMFT, JPP, JSC, MDD, BIK, RORO, BABS, CXA, and INY.
  8. ProShares is closing and liquidating nine ETFs. August 25 will be the last day of trading for UCD, CMD, UXJ, JPX, HBU, HBZ, IGU, IGS, and GDJS.
  9. The iShares iBonds Sep 2016 Term Muni Bond ETF (NYSEARCA:IBME) is scheduled to mature and will cease trading at the market’s close on September 1, 2016.
  10. Cambria has agreed to take over management of the recently launched Dhandho Junoon ETF (NYSEARCA:JUNE). No date has been set for the change.

Previous monthly ETF statistics reports are available here.

Disclosure: Author has no positions in any of the securities, companies, or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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