The Worst ETF In The World

September 19, 2014

There are some stinkers out there, but this crazy ETF takes the cake.

It’s not often you get the opportunity to make such a clear call, but I think I’ve figured out the single worst ETF on the planet. It’s honestly not even close.

Ladies and gentlemen, meet the Elements Linked to Spectrum Large Cap U.S. Momentum ETN (EEH), and let me explain why it’s a problem, not just for people dumb enough to be owning it, but for the ETF industry and the New York Stock Exchange.

The Elements are an extremely bizarre series of exchange-traded notes (ETNs), originally cooked up by Merrill Lynch back in 2007. I say “cooked up,” because as an ETN, there are a lot of cooks in the kitchen, and ultimately, not much real ownership. Merrill was basically just acting as an underwriter, trying to create product it could sell. That’s the business of underwriting brokers.

So it (presumably) contacted the Swedish Export Credit Corporation and asked if it was interested in making 75 basis points a year for underwriting a little piece of debt tied to a dirt-simple momentum index published by BNP Paribas. Everyone said yes, and EEH was born on Aug. 1, 2007.

Compared with what happens after this part of the story, it was a fairly good year for EEH, though not really in a performance sense—investors lost money, but the fund actually traded a few shares now and then:


The Falling Out

But then a little thing called the global financial crisis happened, and EEH—like virtually all of the other products being distributed by Merrill under the Elements umbrella—was forgotten. Mostly, it was forgotten by investors:


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