Gone are the days when an ETF with substantial asset bore little risk of closure. The latest news of VelocityShares 3x Long Crude Oil ETN’s UWTI delisting validates this point.
The product has amassed over $1.5 billion in asset, but is set to be delisted on December 9, 2016, as decided by the issuer Credit Suisse (SIX:CSGN) AG. Notably, Credit Suisse AG will suspend further issuances of these ETNs effective December 9, 2016. However, the ETNs may trade on an over-the-counter basis.
The $222 million VelocityShares 3x Inverse Crude Oil ETN DWTI also faces the same fate. The explanation is simple. Credit Suisse is "better aligning its product suite with its broader strategic growth plans."
As per etf.com, in November, Credit Suisse had announced the closure of another of its ETNs, Credit Suisse X-Links Cushing MLP Infrastructure ETN MLPN. The trend of shutting down ETNs is viewed by etf.com as an effort “to clean up the liabilities on [their] balance sheets.” This is justified even more as European banks are now in jeopardy (read: Should You Worry About Deutsche Bank (DE:DBKGn) ETFs?).
Investors should note that ETNs are debt securities issued by a bank that are senior but unsecured. Being structured as ETNs, the above-mentioned products carry the associated risk of the issuer’s credit worthiness. If the company goes bankrupt, ETN investors have a high risk of losing money especially because these products are unsecured debt.
Having said this, we would like to note that investors eyeing investment options in the oil patch given the recent OPEC output cut deal should not be upset with UWTI no longer being an exchange-traded option (read: OPEC Finally Cuts Output: Energy Stocks & ETFs Up 10% or More).
There is another leveraged oil ETF for the play namely ProShares Ultra Bloomberg Crude Oil UCO. Investors who want to play short can find ProShares UltraShort Bloomberg Crude Oil (AX:SCO) intriguing (read: Should You Buy or Sell Oil ETFs Ahead of the OPEC Meet?).
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PRO-ULS BB CRUD (SCO): ETF Research Reports
VEL-3X INV CRD (DWTI): ETF Research Reports
PRO-ULT BB CRUD (UCO): ETF Research Reports
VEL-3X LNG CRD (UWTI): ETF Research Reports
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Zacks Investment Research