UBS, the Swiss-based firm renowned for its private banking arm,
rolled out two exchange-traded notes today focused on the rarified
world of solid state computer disk drives, recalling the
exquisitely calibrated exposure scheme served up in the First Trust
ISE Cloud Computing ETF (NasdaqGM:SKYY).
One of the notes, the ETRACS ISE SSD Index ETN (NYSEArca:SSDD),
serves up single-exposure. The second, the ETRACS Monthly
2xLeveraged ISE SSD Index ETN (NYSEArca:SSDL), provides
double-exposure and, like all leveraged UBS ETNs, is rebalanced
monthly. Both have an annual expense ratio of 0.65 percent that
accrues on a daily basis, according to a fact sheet on the ETNs
The benchmark on which both ETNs are based, the ISE Solid State
Drive Index, reflects a trend in the information technology world
away from mechanical disk drives and toward memory devices with no
moving parts. Itâs not clear that investors are willing to
embrace such a precise portion of the IT world in an
exchange-traded wrapper. First Trustâs SKYY, for the record, has
more than $50 million in assets, though most of those materialized
in the immediate aftermath of the ETFâs early-July launch.
UBS is no stranger to cooking up boldly arcane strategies in
single- and double-exposure pairs of ETNs. For example, it launched
two Internet IPO ETNs in July and has had two business development
ETNs on the market since May.
It even dreamed up a pair of oil and natural gas
industry-related exchange-traded notes designed to enable investors
to profit from contango, a condition in the futures market when
spot prices of a given commodity are cheaper than futures.
Moreover, in a contangoed market, each succeeding futures contract
is more expensive than the one before it. That ravages investment
returns when a fund manager of a futures-based investment strategy
must roll exposure before a given contract expires.
The Solid State Drive Index
UBS said the 11 companies in the index will be equal-weighted
between drive manufacturer companies and component manufacturer
names. Each of those halves will, in turn, be equal weighted among
the different names in each of the two categories.
Mark Abssy, Index and ETF Manager at ISE, the New York-based
index provider for the two new UBS ETNs as well as First Trustâs
âSKYY,â said in a telephone interview his firm hopes that the
number of companies in the index will grow over time, partly as a
function of more of the now-private players in the solid state
drive industry going public.
Index components are reviewed quarterly for eligibility, when
weights are reset according to the methodology.
On the fact sheet, UBS said that as of Sept. 8, the 11 holdings
and their respective weights were:
- Fusion-io Inc. at 16.22 percent
- Western Digital Corp. at 13.12 percent
- Seagate Technology at 12.23 percent
- OCZ Technology, 10.74 percent
- Silicon Motion Technology Group Ltd., 8.56 percent
- Marvell Technology Group Ltd., 7.87 percent
- LSI Corp., 7.82 percent
- SanDisk Corp., 7.08 percent
- Spansion Inc Class A, 6.09 percent
- Micron Technology Inc., 5.96 percent
- STEC Inc., 4.31 percent
The first four companies are in the drive manufacturer category,
and the final seven are on the component manufacturing side of the
solid state drive industry, Abssy said in the telephone
The fact that the holdings currently deviate from the two-tiered
equal-weighting methodology UBS is shooting for reflects shifting
prices of the holdings since the indexâs Aug. 26 creation. The
index has no performance history prior to that date, UBS said.
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