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WSJ on Risks of Leveraged ETNs, mREITs, BDCs

https://www.wsj.com/amp/articles/bankrupt-in-just-two-weeksindividual-investors-get-burned-by-collap...

".....This year, at least 15 ETNs managed by UBS have been taken off the market after tumbling in value. ETNs run by Citigroup and other firms have suffered significant losses. When troubled funds are taken off the market, investors typically are paid just a fraction of what they initially put in.....unlike ETFs, ETNs don’t own the assets they track. They are debt instruments. And the banks that issue them often have the option to take them off the market if their value falls below a certain level.....mortgage real-estate investment trusts, or mortgage REITs, return a significant portion of their profits to investors through dividends. When interest rates are low, mortgage REITs can look attractive to investors because they offer relatively high income.....The coronavirus pandemic sent corporations scrambling for cash, increasing volatility in overnight borrowing markets on which mortgage REITs rely. That put pressure on their shares. ETNs making leveraged bets on mortgage investment firms nosedived.....ETN Mr. Zhu bought from UBS slumped to less than 25 cents a share, from around $14 at the start of the year. Once the value of the ETN fell below $5, UBS had the option to redeem it. It did so on March 17, notifying investors they would be paid out $0.201 per security held.....Another concept that backfired: ETNs focused on the $122 billion market for loans to small and midsize firms through so-called business development companies, or BDCs.....FS KKR Capital Corp. and Ares CapitalCorp., are down about 39% and 21%, respectively. BDCs managed by BlackRock Inc., Carlyle GroupInc., and Investcorp have fallen 45%, 33%, and 40%.....VelocityShares 3x Long Crude Oil ETN was issued by Citigroup.....It last traded at around 16 cents a share, down from about $15 at the start of the year. In April, Citigroup pulled the ETN off of the market altogether....."

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2 Replies
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Re: WSJ on Risks of Leveraged ETNs, mREITs, BDCs

Very good read! I do not buy ETNs because of the potential loss.

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Re: WSJ on Risks of Leveraged ETNs, mREITs, BDCs

Another Good reason for not owning etns. Same thing happened 2 years ago when XIV failed in late January 2018 and took stock market down with it.

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