iPath ETN Lineup To See Dramatic Revamp

January 16, 2018

Market watchers may have noticed that there were some rumblings in Barclays’ lineup of iPath exchange-traded notes over the past year.

The iPath Bloomberg Natural Gas Subindex Total Return ETN (GAZ) was finally delisted after having its creations frozen for nearly a decade with a replacement ETN offered. Also, a pair of the issuer’s largest VIX ETNs are set to see replacements hit the market soon—roughly a year before the corresponding original versions reach maturity.

In retrospect, these things were all warning signs of a major shakeup in the form of two major announcements last week.

Not only is iPath delisting or redeeming a total of 50 of its ETNs, effective April 12, it’s also launching 15 replacements for its original commodity iPath ETNs—a “B Series” that is sort of a new and improved take on what were among the very first ETNs.

16 Commodity ETN Launches

The “Series B” commodity ETNs are essentially one-for-one replacements for the delisting iPath commodity ETNs. The new products, which are set to launch Jan. 18, are listed in the following table:

 

New ETN Name Ticker
iPath Series B Bloomberg Agriculture Subindex Total Return ETN JJAB
iPath Series B Bloomberg Aluminum Subindex Total Return ETN JJUB
iPath Series B Bloomberg Coffee Subindex Total Return ETN BJO
iPath Series B Bloomberg Copper Subindex Total Return ETN JJCB
iPath Series B Bloomberg Cotton Subindex Total Return ETN BALB
iPath Series B Bloomberg Energy Subindex Total Return ETN JJEB
iPath Series B Bloomberg Grains Subindex Total Return ETN JJGB
iPath Series B Bloomberg Industrial Metals Subindex Total Return ETN JJMB
iPath Series B Bloomberg Livestock Subindex Total Return ETN COWB
iPath Series B Bloomberg Nickel Subindex Total Return ETN BJJN
iPath Series B Bloomberg Platinum Subindex Total Return ETN PGMB
iPath Series B Bloomberg Precious Metals Subindex Total Return ETN JJPB
iPath Series B Bloomberg Softs Subindex Total Return ETN JJSB
iPath Series B Bloomberg Sugar Subindex Total Return ETN SGGB
iPath Series B Bloomberg Tin Subindex Total Return ETN JJTB

 

The ETNs they are replacing (which will be delisted by Barclays) are some of the earliest ETNs, and launched nearly a decade ago (see table below). The Series B products have some key differences relative to their original versions.

 

Existing ETN Name Ticker
iPath Bloomberg Agriculture Subindex Total Return ETN JJA
iPath Bloomberg Aluminum Subindex Total Return ETN JJU
iPath Bloomberg Coffee Subindex Total Return ETN JO
iPath Bloomberg Copper Subindex Total Return ETN JJC
iPath Bloomberg Cotton Subindex Total Return ETN BAL
iPath Bloomberg Energy Subindex Total Return ETN JJE
iPath Bloomberg Grains Subindex Total Return ETN JJG
iPath Bloomberg Industrial Metals Subindex Total Return ETN JJM
iPath Bloomberg Livestock Subindex Total Return ETN COW
iPath Bloomberg Nickel Subindex Total Return ETN JJN
iPath Bloomberg Platinum Subindex Total Return ETN PGM
iPath Bloomberg Precious Metals Subindex Total Return ETN JJP
iPath Bloomberg Softs Subindex Total Return ETN JJS
iPath Bloomberg Sugar Subindex Total Return ETN SGG
iPath Bloomberg Tin Subindex Total Return ETN JJT
iPath S&P GSCI Crude Oil Total Return Index ETN OIL

 

Perhaps most importantly for investors, they have significantly lower fees. The new products will come with a daily investor fee of 0.45%—the older set of ETNs all come with an expense ratio of 0.75%. The fee will also be charged differently, using a daily basis based on the closing indicative value of the ETN.

Prior to 2009, there was no accepted standard for how fees were charged. They could be leveled on a daily basis, on a monthly basis or a quarterly basis, etc. Charging the investor fee on a daily basis is more consistent and predictable for investors; it’s also more similar to how ETFs charge their fees, and is in line with how ETNs launched from 2009 onward have calculated their fees.

UBS similarly launched its own "Series B" ETNs in 2015 and 2016. The largest is the ETRACS 2xMonthly Leveraged S&P MLP Index ETN Series B (MLPZ), with $61.5 million in assets under management. It replaced a similarly named ETN that traded under the ticker MLPV and closed down in 2016.

 

 

Difference In Structure

Further, the new ETNs will be callable, meaning Barclays can redeem them from investors when it sees the need to do so. When an ETN isn’t callable, if something goes wrong before it reaches its maturity, the issuer has very little recourse in terms of pulling the product off the market. This issue came into focus with GAZ, a very popular ETN that basically turned into a zombie fund when its creations were halted several years ago. Creations never restarted, and the product barely traded for nearly a decade, languishing in a weird sort of ETN limbo.

The problem was that it had no “call” feature and Barclays had no way to pull it off the market until the NYSE Arca deemed the ETN no longer suitable for listing on its exchange due to its low share price. The issuer launched GAZB as a replacement product last year, and the new product is callable.

Similar to GAZ, OIL has already had a replacement launched, the iPath Series B S&P GSCI Crude Oil ETN (OILB), which launched back in 2016.

Investors who hold the existing ETNs have a number of choices of what to do.

Options For Shareholders

Of course they can trade shares on the secondary market prior to the delisting, and after they can trade them over-the-counter (OTC), though liquidity and pricing (given that creations will be shut down) could be rather touch-and-go.

Another option is to put the ETNs back to Barclays, which has done away with the minimum redemption size—typically 20,000 to 50,000 shares, an amount that would be manageable only for institutional investors—for these ETNs and all of the others that will be closed or delisted as part of the changes to the iPath lineup. Investors simply need to find a broker to conduct the transaction. They can also choose between receiving cash in return for their ETNs or simultaneously receiving a corresponding amount of the new Series B ETNs tracking the same indexes as the ETNs they are putting back to Barclays.

Delistings & Redemptions

Beyond the previously mentioned products, another 34 ETNs, most of which have not gathered significant assets, will be either delisted or subject to redemption. The 16 ETNs that are delisting are as follows:

 

ETN Ticker
iPath MSCI India Index ETN INP
iPath Asian and Gulf Currency Revaluation ETN PGD
iPath CBOE S&P 500 BuyWrite Index ETN BWV
iPath EUR/USD Exchange Rate ETN ERO
iPath GBP/USD Exchange Rate ETN GBB
iPath GEMS Asia 8 ETN AYT
iPath GEMS Index ETN JEM
iPath Global Carbon ETN GRN
iPath Inverse S&P 500 VIX Short-Term Futures ETN XXV
iPath JPY/USD Exchange Rate ETN JYN
iPath Long Enhanced MSCI EAFE Index ETN MFLA
iPath Long Enhanced MSCI EM Index ETN EMLB
iPath Long Extended Russell 1000 TR Index ETN ROLA
iPath Long Extended Russell 2000 TR Index ETN RTLA
iPath Long Extended S&P 500 TR Index ETN SFLA
iPath Optimized Currency Carry ETN ICI

 

Following their delisting, the funds can be traded on the OTC market, but liquidity and pricing can become issues, as mentioned earlier. 

The 18 ETNs that will be redeemed are in the below table:

 

ETNs To Be Redeemed

ETN Ticker
iPath Pure Beta Agriculture ETN DIRT
iPath Pure Beta Aluminum ETN FOIL
iPath Pure Beta Cocoa ETN CHOC
iPath Pure Beta Coffee ETN CAFE
iPath Pure Beta Copper ETN CUPM
iPath Pure Beta Cotton ETN CTNN
iPath Pure Beta Energy ETN ONG
iPath Pure Beta Grains ETN WEET
iPath Pure Beta Industrial Metals ETN HEVY
iPath Pure Beta Lead ETN LEDD
iPath Pure Beta Livestock ETN LSTK
iPath Pure Beta Nickel ETN NINI
iPath Pure Beta Precious Metals ETN BLNG
iPath Pure Beta Softs ETN GRWN
iPath Pure Beta Sugar ETN SGAR
iPath Pure Beta S&P GSCI-Weighted ETN SBV
iPath Seasonal Natural Gas ETN DCNG
iPath Inverse S&P 500 VIX Short-Term Futures ETN (II) IVOP

 

These ETNs do have a call feature, and their prospectuses indicate they can be redeemed by Barclays at the firm’s discretion. The redemption date is set for April 12, but shareholders will receive cash payments equal to the product’s closing indicative value as of April 5.

That said, the ETNs’ holders can also redeem the ETNs themselves, and again Barclays has waived the minimum redemption size for all of the ETNs being closed or delisted.

The press release notes that investors need not take any action regarding these changes if they so choose, but again, investors who do so will be stuck trying to unwind their investment in the OTC market.

Just to give you an idea of how wide-reaching the changes are, Barclays has a total of 72 products trading under its iPath brand and another nine trading under the Barclays brand.

Contact Heather Bell at [email protected]

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