MacroShares, the brainchild of Yale economist Robert Shiller, is planning a 3-for-1 share split of two exchange-traded products that track the price of crude oil.The move is designed to make the MacroShares Oil Up Tradeable Trust ( UCR) and the MacroShares Oil Down Tradeable Trust ( DCR) more accessible to investors. In doing so, MacroShares also hopes to boost liquidity. The two products, which were formerly known as the Claymore MACROShares Oil Up and Claymore MACROShares Oil Down Trusts, typically trade fewer than 10,000 shares a day. Claymore Securities ended its partnership with MacroShares and its role as administrator on Sept. 30. Even though the net asset values of the products closely track spot oil prices, their share prices don't. The Up Trust closed at $70.45 Thursday, or a 9.8% discount to its NAV of $83.78; Down Oil closed at $44.85, or a 23.4% premium to its NAV of $36.35. On Oct. 2, the company said the exchange-traded products will give shareholders of record on Oct. 19 two additional shares for every outstanding share they own. The payable date for the additional shares will be Oct. 22. Trading on a split-adjusted basis will begin the following day. "From the investor's perspective, as the price of oil moved up, the share price has gotten expensive," says Robert Tull, managing director of MacroMarkets, the depositor company.
He says that the share split will also make it less expensive to make a market in the two exchange-traded products. Like many exchange-traded products, MacroShares are issued and redeemed in large blocks of shares called creation units. These units are purchased by dealers who turn around and sell the individual shares on the secondary market. The more expensive a creation unit is, the more capital a dealer needs to make a market in the shares. But the products are unique in the industry in that they must be issued in pairs of interlinked securities, both up and down. The best way to understand the dynamic is to imagine a seesaw. As the price of crude oil rises by $1, the Up Trust is supposed to increase by a $1, while the Down Trust falls a $1. After the split, it will take a $3 move in the price of oil to move either trust up or down a dollar. Tull says the share split will cut the price of a creation unit of MacroShares to $2 million from $6 million. The share split won't cut MacroShares' hefy management fees, however. Both charge annual fees of 1.6%, making them the only products in the industry to break the psychologically important barrier of 1%. By comparison, the U.S. Oil Fund, an exchange-traded commodity pool that also tracks oil prices, has an expense ratio of 0.75%. "What they're doing with the split I don't really know," says Jim Wiandt, publisher or indexuniverse.com. "A lot of ETFs haven't been trading much, so this looks like they are trying to make them cheaper so people will buy them."