Barclays ETNs Crowd Path Of The Walking Dead

March 22, 2017

Land Mines For Investors

The bigger issue is that these funds could lure in unsuspecting and naive investors who do not know what they are getting into, and they get broadsided with big trading spreads getting in and out of the funds, on top of the pricey expense ratio and potential for depreciation.

But I am a believer in “buyer beware,” and some of these funds do offer unique exposures.

The iPath Pure Beta Aluminum ETN (FOIL) (0.85% expense ratio, 0.66% spread) tracks an index of a single aluminum futures contract whose expiration date is chosen to mitigate contango. While Alcoa would seemingly be a better proxy bet on aluminum, it is not crazy to think that this fund offers an investor a purer play on the commodity, despite the costs and wide spreads—no corporate concerns with the commodity futures contract.

Barclays declined to comment, and it is certainly debatable whether issuers should allow these zombie ETFs to roam markets, offering potentially frightful trading experiences. Out of the 20 exchange-traded products with the fewest assets, 14 are from Barclays, so the firm is clearly in no hurry to shutter any ETNs.

That’s the company’s prerogative, just like it is the investor’s responsibility to understand not just the product they are buying, but what dangers lurk beyond the investment thesis.

At the time of writing, the author held none of the funds mentioned. Drew Voros can be reached at [email protected].

 

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