UBS Rolls Out Business Development ETN


UBS, the Swiss bank famous for private-client wealth management, launched an exchange-traded note today focused on business development companies, following by a day the filing of papers by exchange-traded fund company Van Eck to gain the permission to offer a similar product in an ETF package.

The UBS AG Exchange Traded Access Securities (E-Tracs) Linked to the Wells Fargo Business Company Index (NYSEArca:BDCS) will have an annual expense ratio of 0.85 percent, according to information posted on the New York Stock Exchange's "IPO Showcase" web page.

Business development companies, or BDCs, were created as public vehicles that invest in private equity and were intended to increase cash flow to small businesses, according to Wells Fargo, the index provider for the new ETN. A BDC lends to small and mid-sized companies at high yield equivalent rates and often takes equity stakes in these companies, UBS said in a press release.

The UBS product, because it is an ETN, appears to be the only exchange-traded vehicle that could actually deliver a pure-play portfolio of BDCs. Indeed, the Van Eck prospectus outlining its planned Market Vectors Business Development Company/Specialty Finance ETF said restrictions under the Investment Company Act of 1940 cap the amount that an ETF can own of an individual BDC to 3 percent of that BDC's outstanding stock - a fact that could at times limit the fund's ability to replicate its index.

Also, the PowerShares Global Listed Private Equity Portfolio (NYSEArca:PSP) is an existing ETF that can own BDCs as well, and that fund's prospectus indicated PSP is subject to the same ownership restrictions of BDCs under the 1940 Act that Van Eck's fund will be. The PowerShares ETF launched in October 2006.

Another advantage of an ETN is that any tax consequences of changes in the underlying index are deferred until investors sell the note.

A Healing Economy?

The focus in the exchange-traded product industry on financing for smaller companies comes at a time when some analysts are saying the real economy is starting to become more engaged apart from the monetary stimulus from the Federal Reserve in the form. The credit markets began to seize up nearly three years ago, and completely froze after the market meltdown in September 2008.

Since then, credit has remained tight. For the moment, however, many still say it's easier for large companies to get financing than it is for smaller ones.

But UBS's launch of BDCS and Van Eck's putting a similarly focused ETF into registration suggests the credit markets may finally be returning to some semblance of normality.

Don't forget to check's ETF Data section.

Copyright ® 2011 Index Publications LLC . All Rights Reserved.

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: PSP



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