Deutsche Bank, the sponsor behind PowerShares DB exchange-traded products, is suspending creations, effective immediately, on seven futures-based commodity ETNs in that product family that together have more than $40 million in assets—in part to stay ahead of potential problems related to changing position-limit regulations.
The move, which won’t stop trading or redemptions, means the ETNs may start trading like closed-end funds. In other words, they may trade at premiums or discounts to net asset value since they will now have a finite number of shares.
In a press release issued by Deutsche’s New York-based U.S. headquarters, the company said the affected ETNs include:
- PowerShares DB Commodity Double Short ETN (NYSE Arca: DEE), which has $2.5 million in assets
- PowerShares DB Commodity Double Long ETN (NYSEArca: DYY, which has $11.8 million
- PowerShares DB Commodity Short ETN (NYSEArca: DDP), which has assets of 5.7 million
- PowerShares DB Commodity Long ETN (NYSEArca: DPU), $6 million
- PowerShares DB Agriculture Double Short ETN (NYSEArca: AGA), $6.5 million
- PowerShares DB Agriculture Short ETN (NYSEArca: ADZ), $1.9 million
- PowerShares DB Agriculture Long ETN (NYSEArca: AGF), $11.1 million
The halting of creations echoes what the company did a year ago with its PowerShares DB Agriculture Double Long ETN (NYSEArca: DAG). At the time of the suspension, DAG had almost $150 million in assets. It now has less than $50 million. Concerns about changes in rules at the Commodity Futures Trading Commission on futures-contract position limits were at the center of the DAG decision as well, though the relatively small size of the seven ETNs involved in the latest move made the position-limit concern less immediate. In any case, the CFTC has yet to promulgate new rules, though changes are widely expected.
It seems likely that the relatively small assets under management made Deutsche Bank’s decision to halt creations in the additional seven ETNs easier. An official at Deutsche Bank declined to comment beyond the press release.
Unaffected by the decision to halt creations in the seven ETNs were the two huge commodity-related funds, the $6.15 billion PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC) and the $2.07 billion PowerShares DB Agriculture Fund (NYSEArca: DBA).
Wheat-Related Index Change
Separately, Deutsche Bank said most of the commodity ETNs affected by the creations halt—as well as DAG—would also be affected by a change in indexes related to diversifying their exposures to wheat. The change will be effective after the close of trading on Feb. 16.
While the percentage of each portfolio’s allocation to wheat won’t change, Deutsche has decided to diversify away from the Chicago Board of Trade, where all the wheat exposure of each fund had been concentrated.
Instead, each fund’s wheat allocation will be split into three equal parts, with a third remaining on the CBOT, another third migrating to the Kansas City Board of Trade and the final third switching to the Minneapolis Grain Exchange.
The affected ETNs include:
- PowerShares DB Agriculture Double Short ETN (NYSEArca: AGA)
- DAG, the ETN whose creations were suspended about a year ago
- ADZ, whose creations were suspended today
- AGF, whose creations were suspended today
- DYY, whose creations were suspended today
- DPU, whose creations were suspended today
The in-kind stock transaction used in the Duracell deal lies of at the heart of every ETF, and has the same benefit: tax efficiency.
Stock investors are used to splits, but why all the reverse splits in ETFs?
Falling gas prices and a strong buck may boost retail stocks, but the favorite ETF may not be the best play.
An alluring new bond ETF focused on China’s mainland credit market comes with a few caveats.