ETF Watch: iPath Launches NatGas ETN Clone

March 09, 2017

Today Barclays iPath unit is rolling out a lower-priced sequel to its iPath Bloomberg Natural Gas Subindex Total Return ETN (GAZ) and apparently looking to put the original version out of its misery. GAZ has been closed for creations since August 2009, effectively crippling the note’s ability to operate like a typical exchange-traded product, and opening the door for potentially large premiums and discounts to open up.

Indeed, in a press release yesterday, Barclays noted that a 50% premium to the ETN’s closing indicative value had occurred as of March 7. Unsurprisingly, the ETN’s assets have dwindled to $3.4 million from nearly $190 million just prior to the suspension of creations in 2009.

Barclays announced in the same press release that it was lowering the minimum early redemption size for GAZ, reducing requirements from 50,000 shares of the ETN to 5,000 shares effective after the close of trading today. The reduced redemption size will be effective for three years.

The new-and-improved version of GAZ that debuts today, the iPath Series B Bloomberg Natural Gas Total Return Subindex ETN (GAZB), is listed on the NYSE Arca and tracks the same Bloomberg index as GAZ, offering exposure to natural gas futures, and comes with an annual investor fee of 0.45%. GAZ charges an expense ratio of 0.75%, a significant difference.

Premium Risks

The press release also noted that investors still holding GAZ could, among other actions, put their notes back to Barclays and exchange them for shares in GAZB. It further noted that investors could continue to hold the ETNs but cited a number of risks related to the premium on shares of GAZ.

Creations on GAZ were originally halted after the U.S. Commodity Futures Trading Commission appeared to be bent on imposing position limits on commodity futures ETFs and ETNs. Such limits would have made it hard for the products to track their underlying indexes. A number of ETFs and ETNs tied to commodity futures halted creations around that time, but GAZ never restarted them, essentially becoming a sort of zombie product over the years.

Contact Heather Bell at [email protected].

 

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