UBS Serves Up Risk-On/Risk-Off ETNs


UBS, the Swiss bank known for its private-client investment services, today launched a pair of ETNs that serve up an easy way for investors to express a risk-on or risk-off trade, taking aim at the increasing correlation among assets in markets globally.

Up until now, investors looking to take on risk or eliminate it have had to individually buy and sell securities from various asset classes that move in tandem or in opposition to one another.

But the ETRACS Fisher-Gartman Risk On ETN (NYSEArca:ONN) and the ETRACS Fisher-Gartman Risk Off ETN (NYSEArca:OFF) put in exchange-traded wrappers a basket of 35 securities including equities, commodities, currencies and fixed income that together amount to either risk-on or risk-off positions.

The two ETNs are essentially mirror images of each other. They are designed to mix assets that either rise or fall given a particular market outlook. For example, ONN features long positions in equities and short positions in bonds, while OFF shorts equities and goes long on bonds.

The funds target growing correlation among asset classes that has characterized the aftermath of the market collapse of 2008-2009. Indeed, the gnawing cycles of hope and anxiety surrounding the global economy has made outsized spikes and plunges the norm for almost three years. ONN and OFF mark the first time the asset management industry has designed products catered to the prevailing uncertainty.

The two ETNs bear the name of renowned macro traders Mark Fisher and Dennis Gartman, in part, because the two approached UBS with the risk-on/risk-off concept. The two are behind the Fisher-Gartman Risk Index.

ONN is a plain-vanilla long product, while OFF resets daily, an acknowledgment that markets historically fall a lot faster than they rise.

Portfolio Construction

The index underlying both ETNs was created earlier this month and consists of a mix of long and short positions across various asset classes whose overall value is designed to either rise with a positive market outlook or decline in troubled waters.

It has value-based target weightings for the long and short positions of 150 percent and 50 percent, respectively, and is rebalanced quarterly, the company said on its website.

The index taps into energy, agriculture and metals through long positions in futures-based commodities indexes; equities through various exchange-traded products; and currencies and sovereign bonds through futures contracts.

ONN allocates roughly a third of its long position to energy via indexes such as the Dow Jones-UBS Crude Oil Subindex and the Dow Jones-UBS Brent Oil Subindex.

About another third of the risk-on allocation is tied to equities through ETPs such as the SPDR S'P 500 ETF (NYSEArca:SPY), the PowerShares QQQ Trust (NYSEArca:QQQ) and the SPDR Dow Jones Industrial Average ETF (NYSEArca:DIA).

The remainder of the long positions it splits among currencies, agriculture and metals. ONN then shorts sovereign bonds, as well as some currencies.

OFF shorts the same index underlying ONN and resets the portfolio daily.



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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 Nasdaq, Inc.

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

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