Van Eck Global, the New York-based money management firm known
for its family of Market Vectors ETFs, filed paperwork with U.S.
regulators to market six sector-specific ETFs, in an unprecedented
move that will change the most successful existing
Merrill-Lynch-sponsored HOLDRs into bonafide exchange-traded funds.
Terms werenât disclosed.
Under an agreement between Van Eck and Merrill, the ETFs now in
registration will retain the corresponding HOLDRsâ tickers in an
effort to give investors âthe opportunity for uninterrupted
exposure to target industries,â Van Eck said on its website. The
six HOLDRs have a combined $3.65 billion in assets, or almost 90
percent of all assets in Merrillâs 17 existing HOLDRS.
"This transaction and the expected exchange offer includes
HOLDRs with the highest assets and/or trading volume, and that, in
our opinion, represent the best strategic fit for the Market
Vectors suite of ETFs," Adam Phillips, Van Eckâs managing
director of ETFs, said in a telephone conference with
The plan is the latest sign that the ETF juggernaut is gathering
steam. As of Thursday, U.S. investors had more than $1.1 trillion
allocated to various ETFs and that growth has outpaced inflows in
any other investment vehicle as investors become more familiar with
the benefits of the ETF structure.
HOLDRs, on the other hand, have had their day. The funds, which
are holding company depositary receipts Merrill Lynch launched in
the late 1990s and early 2000s, are narrowly focused portfolios
that, once created, never changed. That set-and-forget aspect has
made them increasingly irrelevant as ETFs have evolved, even though
the six in the Van Eck deal still hold significant assets.
âWe believe ETFs offer significant advantages over HOLDRs in
their ability to evolve with a dynamic underlying index," Phillips
said in a press release. âThis in turn leads to enhanced
diversification and broader-based representation of a market or
Van Eck said it expects the exchange offer to happen sometime in
the third quarter, and that the whole transaction to be consummated
in the fourth quarter.
In the conference call, Phillips declined to speculate on what
the tax consequences would be for investors who choose to accept
the exchange, and also wouldnât venture a guess as to how many
investors might actually agree to the exchange. He said paperwork
on the exchange is likely to be filed in late September, at which
time finer details surrounding the exchange would be clearer.
While HOLDRs are registered under the Securities Act of 1933,
the ETFs Van Eck is putting the new ETFs into registration under
the Investment Company Act of 1940. In the filing, Van Eck said the
new ETFs will each have annual expense ratios of 0.35 percent in
annual fees. They include:
- Market Vectors Biotech ETF (NYSEArca:BBH), which will track a
proprietary rules based, float adjusted, modified market
capitalization weighted benchmark comprised of the 25 largest and
most liquid companies in the biotechnology space.
- Market Vectors Money-Center Bank ETF (NYSEArca:RKH), which
will focus on the top 25 banking names.
- Market Vectors Oil Services ETF (NYSEArca:OIH), which will
comprise the top 25 companies in the oil services industry,
companies involved in equipment used to find and extract
- Market Vectors Pharmaceutical ETF (NYSEArca:PPH), which will
invest in the top 25 drug companies that conduct anything from
pharmaceutical research and development to drug marketing and
- Market Vectors Retail ETF (NYSEArca:RTH), which will focus on
the 25 largest, most liquid retail companies.
- Market Vectors Semiconductor ETF (NYSEArca:SMH), which will
comprise the top 25 U.S.-listed semiconductor companies.
Merrill Lynch is expected to delist the HOLDRs once the
transaction is completed, Van Eck said on its website.
The holders the new funds will replace are:
- Oil Services HOLDRS NYSEArca:OIH)
- Semiconductor HOLDRS (NYSEArca:SMH)
- Pharmaceutical HOLDRS (NYSEArca:PPH)
- Biotech HOLDRS (NYSEArca:BBH)
- Retail HOLDRS (NYSEArca:RTH)
- Regional Bank HOLDRS (NYSEArca:RKH)
The 11 Merrill Lynch HOLDRS that aren't part of the deal with
Van Eck have assets of just under $460 million, according to data
compiled by IndexUniverse.
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