Taxes And The HOLDRS Demise

October 12, 2011

The Merrill Lynch HOLDRS will soon be history, and that means investors have a few tax-related choices to make.


That’s right: The jig is finally up for the HOLDRS, the investment vehicles closely related to ETFs created 11 years ago to offer exposure to a diversified basket of stocks.

Merrill announced it’s liquidating the HOLDRS sometime in the fourth quarter of this year, while ETF sponsor Van Eck has plans to switch six of the most popular among them into Market Vectors ETFs, also during the fourth quarter.

For the uninitiated, HOLDRS—Holding Company Depository Receipts—were designed back in 2000 to give investors easy, diversified, exchange-traded access to stocks, just as ETFs do.

Unlike ETFs, however, HOLDRS are static portfolios of stocks: They never rebalance their holdings and aren’t subject to the same diversification requirements as ETFs.

Despite their quirks, the 17 HOLDRS gained a serious foothold among investors, with about $3.54 billion invested in them as of Oct. 3, according to the numbers we crunched. With the announcement that the HOLDRS are being delisted, that money has to find a new home.

There is a silver lining here: Six of the HOLDRS, with a combined $3.09 billion in assets, are being converted to true ETFs under the Market Vectors ETF banner. Investors can consent to have their HOLDRS shares converted to ETF shares, and they even get to keep the same tickers.

The six HOLDRS being converted into ETFs and their assets as of Oct. 3 are:

  • Oil Services HOLDRS (NYSEArca: OIH), $1.68 billion
  • Semiconductor HOLDRS (NYSEArca: SMH), $500.7.5 million
  • Pharmaceutical HOLDRS (NYSEArca: PPH), $475.0 million
  • Biotech HOLDRS (NYSEArca: BBH), $232.7 million
  • Retail HOLDRS (NYSEArca: RTH), $135.3 million
  • Regional Bank HOLDRS (NYSEArca: RKH), $66.4 million


For investors in the remaining 11 HOLDRS, the options are fewer: Redeem your HOLDRS shares for the underlying stocks, or sell your HOLDRS shares on the open market before the date they are delisted.

Each of the choices facing investors has unique tax consequences that are worth considering separately. Let’s take a look at them, one by one:


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