Effective Nov. 15, 17 iPath "Series B" commodity exchange-traded notes (ETNs) will be getting new tickers, which in fact will be the same as their initial tickers.
Confused? The move is the latest step in a revamp designed to make the Barclays ETN lineup more investor friendly and less likely to repeat the "zombie fund" status that doomed the iPath Bloomberg Natural Gas Subindex Total Return ETN (GAZ) more than a decade ago (read: "Barclays ETN Put Out Of Its Misery").
The ETNs changing tickers are listed in the table below:
Sources: FactSet, ETF.com; data as of Oct. 23, 2018
Notably, this includes the iPath Series B Bloomberg Coffee Subindex Total Return ETN (BJO), which is the top-performing exchange-traded product of the past 30 days. BJO has risen an impressive 26.7% on strong fundamentals in the coffee market.
The ‘Series B’ Commodity ETNs
The iPath "Series B" ETNs, which launched in January, are replacements for a series of commodity ETNs that launched more than a decade ago, and which were some of the oldest ETNs on the market. For years, these ETNs offered some of the only means of accessing pure-play, single commodities outside the futures market.
Those first-gen ETNs delisted in April of this year. (Two exceptions of note: The iPath Series B S&P GSCI Crude Oil ETN (OILB), a Series B replacement for OIL, launched in 2016; while the iPath Series B Bloomberg Natural Gas Subindex Total Return ETN (GAZB), a Series B replacement for GAZ, launched in 2017. The original GAZ delisted in December 2017, while the original OIL delisted in April 2018, with the rest of the delisted iPath ETNs.)
While never superstars of the commodity segment, the iPath Series B ETNs have their devotees among commodity hedgers and traders. Though a majority of the "Series B" ETNs have less than $10 million in assets under management, a quick peek at their flows data reveals that, unlike many products of similar size, almost all of them trade at least some shares regularly, often even daily (read: "Barclays Debuts Series B iPath ETNs").
Better ETN Mousetrap
In terms of index construction and methodology, the replacement Series B ETNs are functionally identical to their predecessors. However, two key improvements were made.
The first: The Series B ETNs cost significantly less than their previous incarnations, carrying a price tag of 0.45% instead of 0.75%. The fee is also charged on a daily basis, based on the ETN's closing indicative value. That brings these products more in line with how ETFs and other ETNs launched in the past decade calculate their fees (read: "iPath Lineup To See Dramatic Revamp").
The second difference is that the Series B ETNs are now callable, meaning that the issuer, Barclays, may at any time redeem them from investors at the value of the note.
That's an important change. Unlike an ETF, an ETN is a debt note with a set maturity date (usually decades in the future); as such, it can't be closed in the same way an ETF can. Issuance of new shares can be suspended, and the note can be delisted, but unless the ETN is callable, the issuer doesn't have the ability to yank the ETN from the market, should something go wrong before the ETN hits maturity.
Curious Case Of GAZ
This very issue arose back in 2009 in GAZ, an ETN that had grown too large too fast. Over the course of weeks, GAZ had swelled to nearly $200 million in assets under management, stoking fears the U.S. Commodity Futures Trading Commission might impose position limits on the ETN. In response, Barclays closed creations on the fund.
Creations never restarted. For over a decade, the product existed as a "zombie fund" that was technically active but barely traded. However, Barclays had no mechanism to take GAZ off the market until the NYSE Arca—the exchange on which the ETN traded—concluded that the product's share price was too low to list.
Issuers learned from GAZ's example. Almost all ETNs issued since 2009 are callable, so that the issuer removes the note from the market before investors find themselves stuck in a zombie fund.
Contact Lara Crigger at [email protected]