UBS Launches 2 ‘Disk Drive’ ETNs

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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 from UBS.

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. It’s not clear that investors are willing to embrace such a precise portion of the IT world in an exchange-traded wrapper. First Trust’s SKYY, for the record, has more than $50 million in assets, though most of those materialized in the immediate aftermath of the ETF’s 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 Trust’s “SKYY,” 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 interview.

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 index’s Aug. 26 creation. The index has no performance history prior to that date, UBS said.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: SKYY

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