UBS, the issuer behind one of the broadest lineups of ETNs available to U.S. investors, continued the aggressive expansion of its product lineup this week with the introduction of two unique offerings. The company rolled out a pair of blunt instruments designed to be used in high level “risk on / risk off” trades, a term that has become popular in recent months as risky assets have exhibited strong correlations with one another and so-called “safe havens” have thrived whenever uncertainty pops up. The new ETRACS Fisher Gartman Risk On On ETN (ONN) will seek to replicate the Fisher-Gartman Risk Index, a benchmark that includes long positions in various risky asset classes such as stocks and commodities and short positions in traditional safe haven investments such as sovereign bonds. The index consists of 150% long positions combined with 50% short exposure, resulting in a net 100% long portfolio:
| Sector | Long Weighting | Short Weighting |
|---|---|---|
| Energy | 48% | 0% |
| Equities | 46% | 0% |
| Currencies | 28% | -16% |
| Sovereign Bonds | 0% | -34% |
| Agriculture | 18% | 0% |
| Metals | 10% | 0% |
| TOTALS | 150% | -50% |
Each broad asset class consists of a number of individual positions; for example, the energy exposure includes positions in crude oil, Brent crude, heating oil, and unleaded gasoline, among others. The equity position includes various positions in both domestic and international equity ETFs:
| Sector | Index Component | Long/Short Exposure | Weight |
|---|---|---|---|
| Energy | Dow Jones-UBS Crude Oil Subindex (DJ-UBS CICL) | Long | 20.00% |
| Sov’n Bonds | 10yr US T-Note – CBOT Listed Futures (ZN) | Short | -16.00% |
| Energy | Dow Jones-UBS Brent Oil Subindex (DJ-UBS CICO) | Long | 14.00% |
| Currencies | Euro Currency – CME Listed Futures (6E) | Long | 14.00% |
| Currencies | Japanese Yen – CME Listed Futures (6J) | Short | -12.00% |
| Sov’n Bonds | 30yr German Bund – Eurex Listed Futures (FGBL) | Short | -12.00% |
| Agriculture | Dow Jones-UBS Corn Subindex (DJ-UBS CIC) | Long | 10.00% |
| Equities | SPDR S&P 500 ETF Trust (SPY) | Long | 9.20% |
| Currencies | Australian Dollar – CME Listed Futures (6A) | Long | 8.00% |
| Sov’n Bonds | 10yr Gilt – LIFFE Listed Futures (R) | Short | -6.00% |
| Energy | Dow Jones-UBS Heating Oil Subindex (DJ-UBS CIHO) | Long | 6.00% |
| Metals | Dow Jones-UBS Copper Subindex (DJ-UBS CIHG) | Long | 6.00% |
| Currencies | Canadian Dollar – CME Listed Futures (6C) | Long | 6.00% |
| Equities | iShares MSCI Hong Kong Index Fund (EWH) | Long | 5.52% |
| Equities | PowerShares QQQ Trust, Series 1 (QQQ) | Long | 5.52% |
| Currencies | Swiss Franc – CME Listed Futures (6S) | Short | -4.00% |
| Energy | Dow Jones-UBS Unleaded Gasoline Subindex (DJ-UBS CIRB) | Long | 4.00% |
| Energy | Dow Jones-UBS Gas Oil Subindex (DJ-UBS CIGO) | Long | 4.00% |
| Agriculture | Dow-Jones UBS Wheat Subindex (DJ-UBS CIW) | Long | 4.00% |
| Agriculture | Dow-Jones UBS Soybeans Subindex (DJ-UBS CIS) | Long | 4.00% |
| Metals | Dow Jones-UBS Silver Subindex (DJ-UBS CISI) | Long | 4.00% |
| Equities | SPDR Dow Jones Industrial Average ETF Trust (DIA) | Long | 3.68% |
| Equities | iShares S&P 500 Index Fund (IVV) | Long | 3.68% |
| Equities | Rydex S&P Equal Weight ETF (RSP) | Long | 3.68% |
| Equities | iShares MSCI Brazil Index Fund (EWZ) | Long | 3.22% |
| Equities | SPDR EURO STOXX 50 Fund (FEZ) | Long | 3.22% |
| Equities | Semiconductor HOLDRs Trust (SMH) | Long | 1.84% |
| Equities | Vanguard Large-Cap ETF (VV) | Long | 1.79% |
| Equities | iShares MSCI EAFE Index Fund (EFA) | Long | 1.38% |
| Equities | Vanguard MSCI European ETF (VGK) | Long | 1.38% |
| Equities | WisdomTree Dreyfus Brazilian Real Fund (BZF) | Long | 0.46% |
| Equities | Guggenheim BRIC ETF (EEB) | Long | 0.46% |
| Equities | First Trust Dow Jones Internet Index Fund (FDN) | Long | 0.46% |
| Equities | Market Vectors Russia ETF (RSX) | Long | 0.46% |
| Equities | Schwab U.S. Large-Cap ETF (SCHX) | Long | 0.05% |
| Total | 100% | ||
So ONN effectively offers exposure to a portfolio that consists of thousands of individual securities, ranging from commodity futures contracts to Russian stocks to the Brazilian real. By combining long positions in risky assets with short positions in bonds that tend to perform well in tumultuous environments, ONN is constructed as a fund that should perform quite well when risk aversion drops and investors pile into asset classes such as stocks and commodities [see ETFs To Smooth Volatility].
Risk OFFAlso debuting this week is the “risk off” counterpart to ONN; the ETRACS Fisher-Gartman Risk Off ETN (OFF) delivers daily inverse exposure to the same index to which ONN is linked. That means that ONN is effectively short risky assets such as international stocks and emerging markets currencies, and long in assets such as the Swiss franc, the Japanese yen, U.S. Treasuries, and long-term German bonds. So that product could be useful for investors looking to bet on a dip in equity markets; when a wave of risk aversion strikes, the asset classes in which this product maintains short positions should generally decline in value, while safe havens will get a boost from investors looking to preserve capital [see our Simple (But Effective) Safe Haven Portfolio].
Disclosure: No positions at time of writing.
Disclaimer: ETF Database is not an investment advisor, and any content published by ETF Database does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. From time to time, issuers of exchange-traded products mentioned herein may place paid advertisements with ETF Database. All content on ETF Database is produced independently of any advertising relationships.
Original post
No comments:
Post a Comment