It's not unusual for funds to close. After all, some ideas just
don't catch on with investors, and nobody expects a fund manager to
spend her days minding the store on a tiny asset base forever.
Lately, however, we've seen a rash of stealth closures that
leave me, frankly, a bit concerned.
The most recent stealth closure happened this morning, when the
Sustainable North American Oil Sands ETF (NYSEArca:SNDS) became the
YieldShares High Income ETF (NYSEAarca:YYY).
I'm challenged to come up with the right verb in that preceding
sentence. SNDS, metaphorically, went to bed an oil sands ETF and
woke up this morning buying closed-end funds at deep discounts.
It's a Calvin-and-Hobbes-style transmogrification.
I don't have any particular ax to grind about either version of
the security that perhaps can now only be identified perfectly by
its CUSIP (37950E481).
The old version was a thematic play in a narrow little corner of
the energy market. The new version is trying to exploit the
systematic mispricing of closed-end funds and roll it up into a
more liquid wrapper. While neither cause is necessarily noble,
exactly, they're both perfectly reasonable strategies.
And I've got nothing but good wishes for the YieldShares folks.
Christian Magoon, the chief executive officer of YieldShares, is an
industry veteran, and a stand-up guy. The strategy is interesting
and fills a niche. It's certainly hitting a button-yield-that's got
a lot of focus right now.
But this kind of ticker repurposing gives me hives.
Here's what the Bloomberg "DES" page for YYY looks like this
And then there's the issue of the accidental tourist. When we
posted our original story on the change, the very first comment we
received asked:"If I were to buy into SNDS, what will happen when
the change to YYY is complete?"
While it's true that there was very, very little money in the
old SNDS last night, there were still 50,000 shares outstanding,
owned them. Presumably, last night they thought they were holding a
basket of U.S. and Canadian oil stocks, and this morning, they own
a collection of closed-end funds.
While that might seem like a crazy trade, it could theoretically
be better than the alternative-just shutting down SNDS.
The way the transition actually worked is that SNDS did a custom
two-way creation/redemption with a willing authorized participant.
They dumped out the old stocks, and got the new CEFs in-kind, in an
entirely nontaxable transaction. The alternative-dumping the stocks
and sending everyone a check- would certainly have had some tax
So in that sense, sure, it's-I guess, if I squint-better for
better for the fund issuer, who gets to launch a new fund without
all the expense of actually launching a new fund. Instead, they
just flip a switch and presto, whammo, there's that new-fund smell.
Hopefully nobody gets hurt.
At the time this article was written, the author held no
positions in the securities mentioned. Contact Dave Nadig at
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