"I bought and sold the
HOLDRs within a few months of them becoming available," writes reader
. "I made around 35% on each trade. I am pleased with the trades."
A testimonial like this is likely to make you run out and scoop up shares of
HOLDRs, the baskets of 20 stocks that trade on the
American Stock Exchange
. But, like all investment options, it pays to get more than one opinion.
Try someone who took a beating thanks to the
B2B Internet HOLDRs
basket, which is down 58.5% since its late-February launch.
"Had I known all the downsides right at the beginning, I could have decided not to invest in B2B HOLDRs," says
Two recent columns have discussed
the basics of these securities and a few of their
drawbacks. Several readers wrote in to share their own experiences -- some good and some not so good. This column takes the most illuminating of those letters, and gives investors considering buying shares of HOLDRs the lessons of experience.
But first, a little history. The first HOLDRs offering, the
, came out in the mid-1998 to reassemble the spun-off part of the Brazilian telecom company
. Newer, sexier sector baskets started appearing last fall, beginning with the
Now you'll find 12 in all, including the new
, who owns the Biotech and
HOLDRs, relates his confusion over a HOLDRs quirk.
"A funny thing happened a while back. All of a sudden I had five shares of
show up in my account with
with no indication of where they came from. I was truly puzzled," writes Spiegel. "It took the person at Schwab some hunting to find that it was because Agilent was separated from a company in the Internet Architecture HOLDRs. Now I've got five shares (current value about $375) that will cost me about $30 to sell. ... I like Agilent, but five shares is not worth the hassle."
If you buy one of the HOLDRs, you should be prepared for this to happen. In a spinoff, merger or acquisition, you'll get the shares or cash that's due shareholders in the affected company, provided it's in the HOLDRs you own.
In the case of Agilent,
spun off this tech company that makes testing instruments. For every 100 shares of the Internet Architecture basket you owned, you got 2.67 shares of Agilent in your account.
These products have other notable quirks. For one, stocks can disappear from the portfolios thanks to mergers and acquisitions, and new ones will not be added. These fixed baskets don't have managers who can make such decisions. Since HOLDRs investors actually own the underlying stocks in each portfolio, you can also expect to get annual reports from every company in each basket that you buy.
If you're buying these products on your own and not getting financial advice from anyone, it's up to you to decide if these securities are too risky for your portfolios. Caveat emptor.
That said, finding any details about these products is tough. That dearth of information seems to the biggest frustration for investors.
Some readers wrote in to express their problems with the Telebras HOLDRs.
"I have gotten absolutely no communication whatsoever as a result of the conversion of my previous shares of Telebras into the HOLDRs," writes
. "The dividends and even the recent big spinoffs have been complete surprises, which is not the most comforting type of investment."
Ronen, the unlucky B2B HOLDRs investor, voices a similar criticism. "It's a pity that there is so little information from Merrill Lynch about the products that they have invented. I was searching their Web site but found nothing."
If you buy one of the HOLDRs, you'll be a shareholder in every company that's in that basket. And you're ultimately responsible for keeping track of every corporate action or news event that affects your investment.
Hopefully, the upcoming HOLDRs Web site will make this a little easier.
Send your questions and comments to
firstname.lastname@example.org, and please include your full name.
Dear Dagen aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.