Van Eck To Reverse-Split Solar ETF 'KWT'

June 28, 2012

Van Eck looks to pump up its solar ETF KWT’s share price with a 1-for-15 reverse stock split.

Van Eck, the New York-based money management firm, is planning a 1-for-15 reverse share split on its Market Vectors Solar Energy ETF (NYSEArca: KWT), which has dropped by about a third this year and lost almost three-quarters of its value in the past year.

The share split, which will take effect on Monday, July 2, will shrink the number of KWT shares by a factor of 15 while pumping up the share price 15 times. The ETF was trading at $2.50 on Thursday afternoon, down 2.3 percent for the session, according to information posted on Google Finance.

That means that at today’s price, KWT will be trading at $37.50 a share—a price at which bid/ask spreads would amount to a lot less for a given dollar value of an investment than if the shares remained below $3 a share.

KWT’s reverse split is the second on a solar energy ETF this year. The Guggenheim Solar ETF (NYSEArca: TAN) underwent a 1-for-10 reverse split after the ETF lost two-thirds of its value in 2011. In fact, the two ETFs were the worst-performing exchange-traded products last year—a function of all of the volatility in markets last summer and the highly publicized bankruptcy of solar panel maker Solyndra.

While some analysts still see a bright future for solar energy, its fortunes are very much tied to oil prices. And, on that front, the challenge is front and center. Crude oil futures in the U.S. are now trading around $80 a barrel, or nearly 20 percent lower than at the end of 2011, as the eurozone’s debt crisis slowing growth in China erode investor confidence.

Open orders involving KWT shares at the close of business on Friday, June 29 will be canceled, the New York Stock Exchange said in a communique yesterday.  New post-split KWT shares will be admitted to trading at the opening of business on Monday, July 2, the exchange said.

KWT had $9.6 million in assets as of the June 27 close, while TAN had just under $50 million, according to data compiled by IndexUniverse.

Fractional Shares

The total market value of outstanding shares won’t be affected by the reverse split, except for any fractional shares that result from the action.

Post-split fractional shares will be redeemed for cash and sent to the broker of record, Van Eck said in a press release.

This redemption may cause some shareholders to realize gains or losses, which could be a taxable event for those shareholders.

Apart from the possible redemption of fractional shares, the reverse split won’t result in a taxable transaction for holders of the fund, Van Eck said.

 

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