ETN News

Lehman Brothers Lists New ETNs in the Private Equity and Commodities Sectors

Lehman Brothers announced that they are listing three new ETNs tomorrow, which will be their first entries into the rapidly growing exchange traded note market. The offerings are:

  • The Opta Lehman Brothers Commodity Index Pure Beta Agriculture Total Return ETN, which will trade under the symbol EOH and track corn, soybean meal, soybean oil, soybeans, wheat, coffee, cotton, and sugar future prices. It is designed to spot commodity returns in those markets.
  • The Opta Lehman Brothers Commodity Index Pure Beta Total Return ETN, which will trade under the symbol RAW with a focus on the energy, metals, agriculture and livestock. It is also designed to spot commodity returns in those markets.
  • The Opta S&P Listed Private Equity Index Net Return ETN, which will trade under the symbol PPE and track the S&P Listed Private Equity Index Net Return, which contains the stocks of 30 publicly listed private equity companies.

The private equity ETN is the first ETN to track any type of private equity index, while the commodity ETNs will be competing with existing iPath ETNs from Barclays and Elements ETNs from SEK. The commodity ETNs charge an annual fee of 0.85%, and the private equity ETN charges an annual fee of 0.75%. These fees are lower than the expenses charged by ETFs that cover the same sectors, which may make them more attractive to investors.

Two New ELEMENTS ETNs Issued With A Focus on Grains Market

The Swedish Export Credit Corporation (SEK) has issued two new ETNs. The first ETN, which trades under the symbol FUE, tracks the MLCX Biofuels Index, which is made up of futures contracts on seven agricultural commodities used in biofuels production. The other ETN tracks the MLCX Grains Index under the symbol GRU.

Both of these notes can be used to play the biofuels market, since the MLCX Grains Index is made of futures contracts on 4 grains, with only one (wheat) not currently used in biofuel production.

Both of these notes have a annual fee of 0.75%, and have about $4 million in assets at the time they were listed.

Mutual Fund Firms Criticize Tax Benefits of Exchange Traded Notes

Large mutual funds, including Vanguard and Fidelity, are asking the U.S. government to review the tax advantages of ETNs, with the Investment Company Institute, the trade association representing these firms, calling the benefits "unwarranted, unintended and unfair." These companies are concerned because owners of ETNs are not required to pay any capital gains tax until the note is sold or it expires and is redeemed, where mutual fund and ETF owners must pay taxes on realized gains and distributions each year, which affects mutual funds more than ETFs.

David Hoffman at recently wrote an article explaining the battle between the mutual fund industry and ETN issuers, and he feels that the mutual fund industry will ultimately come out on top. Fortunately, the CEO of the Securities Industry and Financial Markets Association of New York and Washington, Marc E. Lackritz, sent a letter to the Ways and Means Committee last month characterizing the position of the ICI as a competitive one, rather than one based on a valid concern about tax policies.

If the tax advantages of ETNs are removed by new legislation, some of the ETNs that invest in sectors that are already covered by established mutual funds and ETFs may struggle to survive, but other ETNs that are breaking new ground should still make gains in the investing world.

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