The Market Vectors Solar Energy ETF (NYSE:
KWT
) will undergo a 1-for-15 reverse split when U.S. markets open on
Monday July 2. That makes KWT
the second solar ETF to artificially inflate its
price via reverse split this year
.
In February, the larger Guggenheim Solar ETF (NYSE:
TAN
) underwent a 1-for-10 reverse split. Reverse splits among
leveraged ETFs are not uncommon. In April, ProShares, the largest
issuer of inverse and leveraged ETFs,
announced reverse splits for 11 of its funds
.
Among that roster were well-known ETFs such as the ProShares
UltraShort Brazil (NYSE:
BZQ
) and the ProShares UltraShort Silver (NYSE:
ZSL
). In theory, leveraged ETFs are designed to go to zero. So as to
avoid this outcome, reverse splits are commonplace with these
products.
Reverse splits are not as common for non-leveraged
exchange-traded products. However, recent examples of reverse
splits with non-leveraged ETFs and ETNs provide a valuable clue
to traders: a reverse split may be an engraved invitation to
short that product.
In other words, KWT's price may not stay inflated for long,
particularly with the
woes being faced by the solar sector
.
The rival Guggenheim Solar ETF has proven as much. TAN's
reverse split went into effect on February 15. The fund, which is
home to downtrodden solar stocks such as First Solar (NASDAQ:
FSLR
), Trina Solar (NYSE:
TSL
) and Suntech Power (NYSE:
STP
) has proceeded to lose almost 43 percent of its value following
the reverse split.
TAN is not the only example of a regular long ETF faltering
mightily post-reverse split. A week after TAN's reverse split,
the U.S. Natural Gas Fund (NYSE:
UNG
) underwent a 4-for-1 reverse split. UNG has slid almost 13.1
percent since the split. This slide included UNG's approximate
10.5 percent jump in the past month, as traders have embraced
natural gas futures. In the two months following its reverse
split though, UNG traded lower by more than 30 percent one
point.
The iPath S&P 500 VIX Short-Term Futures ETN (NYSE:
VXX
) might be the most egregious post-reverse split offender. Since
VXX is a volatility product that tracks VIX futures, an argument
can be made that there is element of leverage to how this product
functions. Leveraged or not, VXX has plunged more than 91 percent
since a 1-for-4 reverse split went into effect on November 9,
2010.
Bottom line: Traders that love to short ETFs might be excited
about news of another imminent reverse split. Past performance is
not a guarantee of future results, but in the case of ETFs and
reverse splits, the evidence could be compelling.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.