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:
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.
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:
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
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]