The Sustainable North American Oil Sands ETF (NYSEArca:SNDS) is about to be discontinued and turned into a completely new strategy that focuses on high income due to the fund's struggle to gather assets in the 10 months it's been in the market.
The $1.2 million SNDS will become the YieldShares High Income ETF (NYSEArca:YYY), a fund of funds that will track the ISE High Income Index and invest in the top 30 U.S. exchange-listed closed-end funds.
These funds are selected and ranked based on factors that look to create a portfolio designed to deliver high current income, according to a filing Exchange Traded Concepts-the firm behind SNDS-submitted to regulators. YYY will cost 1.65 percent a year, which includes a 0.50 percent management fee.
It's not unusual to have an ETF provider retrofit a strategy that's no longer economically viable in this manner, because it's often more economical to transition the fund into a brand-new strategy than liquidate a fund and start from scratch.
Of note, Exchange Traded Concepts' latest ETF will use the same ticker the now-defunct Bear Stearns Active ETF was known for:'YYY." The original 'YYY' used to be listed on the American Stock Exchange and it was liquidated in October 2008.
YYY can invest in a variety of funds that own securities including equities, taxable investment-grade bonds, high-yield debt, municipal securities, preferreds, convertibles, commodities and REITs, among others, the filing said.
Eligible holdings, picked from the entire universe of U.S.-listed closed-end funds, must have at least $500 million in market capitalization and meet minimum trading volume requirements.
The funds are then ranked based on factors thusly:in descending order by fund yield; in ascending order by fund share price premium/discount to net asset value on the index rebalancing date; and in descending order by fund average daily value of shares traded over the six-month period prior to the index rebalancing date, the filing said.
Once ranked, the top 30 underlying funds are included in the index, and are weighted based on what the company calls a "modified linear weighted methodology."
That essentially means the weighting scheme begins by assigning the top-ranked security the greatest weighting in the portfolio that equates to the multiple of the smallest weighting-in a portfolio of 30 names, the top-weighted holding's weight will be 30 times that of the smallest.
Still, weightings are "modified" in that each constituent weighting is capped at 4.25 percent of the overall mix regardless of this linear scheme, the filing said.
The index, created in partnership with YieldShares, calculated by Structured Solutions, and provided by the International Securities Exchange, is rebalanced annually.
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