iPath ETN Redemptions a Death Knell for the Wrapper?

Barclays has long been one of the largest issuers of exchange-traded notes, only rivaled by UBS’ ETRACS lineup in the category. But yesterday the issuer’s iPath arm announced it would be calling and redeeming 21 of its 26 iPath ETNs, including all but one of the products in its offering of commodity futures ETNs, as of June 14. The press release also notes that trading in the products will be halted before the market open on June 8. 

The bank has long been the dominant issuer of ETNs, but has run into some wrinkles over the years. Most recently it suspended sales of its entire lineup in spring 2022 for several months after a record-keeping issue involving the shelf registration of some of its products. 

The ETNs that will be redeemed include the following: 

• iPath Pure Beta Crude Oil ETN (OIL) 
• iPath Pure Beta Broad Commodity ETN (BCM) 
• iPath S&P GSCI Total Return Index ETN (GSP) 
• iPath Bloomberg Cocoa Subindex Total Return ETN (NIB) 
• iPath Bloomberg Lead Subindex Total Return ETN (LD) 
• iPath Series B Bloomberg Natural Gas Subindex Total Return ETN (GAZ) 
• iPath Series B Bloomberg Energy Subindex Total Return ETN (JJE) 
• iPath Series B Bloomberg Copper Subindex Total Return ETN (JJC) 
• iPath Series B Bloomberg Coffee Subindex Total Return ETN (JO) 
• iPath Series B Bloomberg Grains Subindex Total Return ETN (JJG) 
• iPath Series B Bloomberg Nickel Subindex Total Return ETN (JJN) 
• iPath Series B Bloomberg Cotton Subindex Total Return ETN (BAL) 
• iPath Series B Bloomberg Tin Subindex Total Return ETN (JJT) 
• iPath Series B Bloomberg Sugar Subindex Total Return ETN (SGG) 
• iPath Series B Bloomberg Agriculture Subindex Total Return ETN (JJA) 
• iPath Series B Bloomberg Industrial Metals Subindex Total Return ETN (JJM) 
• iPath Series B Bloomberg Aluminum Subindex Total Return ETN (JJU) 
• iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW) 
• iPath Series B Bloomberg Softs Subindex Total Return ETN (JJS) 
• iPath Series B Bloomberg Precious Metals Subindex Total Return ETN (JJP) 
• iPath Series B Bloomberg Platinum Subindex Total Return ETN (PGM) 

The closing ETNs have combined assets under management of more than $520 million, with the largest being JJC, with $71.2 million. Meanwhile, five ETNs will remain in the iPath family. Those products and their assets under management are as follows: 

• iPath Bloomberg Commodity Index Total Return ETN (DJP), $704.5 million 
• iPath Series B S&P 500 VIX Short Term Futures ETN (VXX), $359.9 million 
• iPath Series B Carbon ETN (GRN), $52.8 million 
• iPath Series B S&P 500 VIX Mid-Term Futures ETN (VXZ), $45.1 million 
• iPath Select MLP ETN (ATMP), $257.7 million 

Barclays also said in its announcement that it would be waiving the minimum redemption size on the ETNs entirely. 

A spokesperson for Barclays said there were no plans to relaunch the products, something that happened in 2018, when it closed or delisted 50 ETNs, many of which are still trading over the counter since they were not (and likely not able to be) called. That January, Barclays had rolled out new and enhanced versions of its existing commodity futures ETNs, and after the shutdowns, it assigned the original tickers of its first batch of ETNs to the corresponding new launches.  

The move by Barclays removes the only products representing certain targeted areas of the commodity futures space. For example, NIB, BAL and LD are the only products offering exposure to cocoa, cotton and lead futures individually. That said, all of the shuttering products have been on the market for several years and none currently has more than $100 million in assets. 

A Shrinking Space 

The number of ETNs has been dwindling in recent years. The closure of the 21 iPath ETNs will leave just 60 ETNs currently trading. That’s less than half the roughly 160 that were trading prior to the COVID-19-driven market crash in 2020.  

ETNs typically have been used to capture strategies and market segments that are either difficult or costly to put in a ’40 Act ETF wrapper. As the years have passed, they have increasingly represented leveraged or inverse exposures. In fact, after the redemptions of the iPath ETNs, the entire ETN universe will include 37 leveraged or inverse products—well over half of all ETNs. 

But ETNs also come with their own sets of risks and drawbacks. For one thing, rather than the actual assets of the underlying, they are backed by the credit of their issuer. In most cases that’s fine, but the ETNs issued by Lehman Brothers simply ceased to exist when the investment bank declared bankruptcy. And the same thing could have happened with any ETNs issued by Credit Suisse when it flirted with bankruptcy before its takeover by UBS. They are essentially unsecured debt.  

They also don’t pay dividends, and can be viewed as liabilities by their issuers since they show up on balance sheets as debt. Many believe Credit Suisse abruptly closed two highly successful geared oil ETNs several years ago simply to clean up the firm’s balance sheets a bit.  

Contact Heather Bell at [email protected]