New ETNs Dive Into IPO Mania
NEW YORK (TheStreet) -- If ever any exchange-traded products were going to be fodder for skeptical debate, the new eTracs Internet IPO ETN (EIPO) and the 2X Leveraged eTracs Internet IPO ETN (EIPL) would be it. UBS (UBS), the bank underlying the notes, came to the market very quickly to capitalize on the newest mania of social media and new internet IPOs.
Each ETN tracks the same index with the only difference being the leverage for EIPL. The current index is a "who's who" of all most popular recent Internet IPOs. Some of the prominent holdings are LinkedIn (LNKD), Pandora (P) and Open Table (OPEN). There are also foreign stocks in there like Russian search engine Yandex (YNDX) and Chinese social networking company Renren (RENN).
The indices rebalance monthly and can also be reconstituted monthly so a company like Zillow (Z) could be in the index as soon as the July 31 rebalance/reconstitution. Once a company has five trading days (with volume) under its belt it is eligible for consideration for the end of that month. Obviously this means the index will not capture any first-day frenzies but ensure the index will remain on top of the trend.
It seems pretty obvious that UBS wants the fund to be able to quickly own any of the other companies that are candidates for IPO like Facebook, Twitter, Groupon, Kayak or any other companies that will come on the horizon.In looking at an exchange traded note it needs to be understood that the product represents an unsecured debt obligation of the issuer, again in the case UBS. The notes don't actually own anything, they simply promise to replicate the basket they are tracking. ETNs do a good job of tracking their respective underlying indices but a failure of UBS, an extremely remote possibility, would mean a wipeout for note holders. The expense ratio for both of the notes will be 0.58% and of course there will be no dividends paid. In the few days of trading so far there has been essentially no volume, so the potential volatility is not evident in the trading. But both notes stand to be incredibly volatile. Since its debut in May, Renren is down 43%, in 2010 Open Table was up 163% and in its short time trading LinkedIn has doubled from its IPO price, then fell 30% in its first month of trading and subsequently rallied 62% from the June low.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV