Leveraged ETN Suspends Creations

Last week, UBS suspended creations on an ETRACS ETN with nearly $60 million in assets under management. The ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend ETN (SMHD) is tied to the Solactive US Small Cap High Dividend Index and provides twice the monthly return of its benchmark while charging a hefty expense ratio of 1.65%.

According to announcements made on Oct. 8 and 9, UBS will no longer issue any new notes of SMHD, nor will it sell any of the notes remaining in its inventory. However, the notes may still be redeemed by the investors holding them, and they will remain listed on the NYSE Arca. Also, UBS can still call the notes as laid out in the ETN’s documentation.

The press release from UBS says that the suspension will be effective until the issuer announces otherwise. In the meantime, investors could see significant premiums or discounts open up on the ETN.

Although the ETN is down after last week’s market crash, it’s not clear why UBS decided to suspend creations. The product’s original maturity date was scheduled for February 2045.

Contact Heather Bell at [email protected]