Friday, November 2, 2012

Trading in EGPT Halted - 4 Other ETFs With Significant Egypt Exposure

By Robert Goldsborough

Monday, Van Eck Global announced that owing to the current turmoil in Egypt (and the closure of the country's equity exchange), Van Eck has suspended creation orders in Market Vectors Egypt Index ETF (EGPT). However, Van Eck also announced today that it is continuing to allow investors to redeem their shares in EGPT (which as of this writing was up about 6% on the day, on heavy volumes), per the fund's prospectus.

"Van Eck Global will exercise its right to suspend creation orders of Market Vectors Egypt Index ETF," the firm said in a press release. "This follows the firm's normal policy of suspending creation orders when the underlying market is closed for an extended period thereby helping to prevent the costs of creation activity to be borne by existing shareholders."

What does this mean for investors? As we have seen in previous (but very different) situations in which ETF providers allow redemptions while halting creation orders, it typically prevents an ETF from trading at a large discount, but it does allow an ETF to trade at an at-times substantial premium to the value of its underlying stock holdings (as no authorized participants can arbitrage away the premium by creating new shares and selling them until the premium disappears). Such has been happening recently, so EGPT is effectively functioning as a closed-end fund.

With between $11 million and $12 million in assets, EGPT ordinarily is a fairly thinly traded ETF.

The NYSE Arca halted trading in EGPT before the market open on Monday, on news pending, which turned out to be Van Eck's announcement. The NYSE Arca allowed trading to resume at 11:30 a.m. Eastern time.

Van Eck also noted that EGPT "expects to resume normal operations once the Egyptian Stock Exchange reopens."

Trading has not been halted in other ETFs with meaningful exposures to Egypt, including PowerShares MENA Frontier Countries Portfolio (PMNA), which has more than 16% of its assets invested in companies based in Egypt; Guggenheim Frontier Markets (FRN), which has a nearly 13% exposure to Egypt; Market Vectors Africa Index ETF (AFK), which has more than 20% exposure to Egyptian companies; or WisdomTree Middle East Dividend (GULF), which has a nearly 10% exposure to Egypt.

Disclosure: Morningstar licenses its indexes to certain ETF and ETN providers, including Barclays Global Investors (BGI), First Trust, and ELEMENTS, for use in exchange-traded funds and notes. These ETFs and ETNs are not sponsored, issued, or sold by Morningstar. Morningstar does not make any representation regarding the advisability of investing in ETFs or ETNs that are based on Morningstar indexes.

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