Do Not Buy CSLS

February 23, 2010 by  
Filed under Commentary, ETF IPOs (New ETFs), ETNs

Credit Suisse Long/Short Liquid Index ETN (CSLS) was listed for trading yesterday (February 22, 2010). It is not a hedge fund ETN, and it does not track the similarly-named Credit Suisse Tremont Long/Short Equity Hedge Fund Index. It is an unsecured debt obligation of Credit Suisse. Furthermore, Credit Suisse may choose to suspend the creation/redemption process at any time, eliminating the ability to arbitrage the security’s trading price to its indicative value. Credit Suisse may also choose to delist but not liquidate this offering, leaving investors hanging. Do not buy CSLS.

Credit Suisse obviously cares little about those who invest in its exchange-traded products. In fact, the firm has demonstrated an outright disrespect of those investors. The warnings outlined above are not hypothetical examples – they are actual events involving other Credit Suisse ETNs.

The marketing literature might lead you to believe that CSLS will track the Credit Suisse Tremont Long/Short Equity Hedge Fund Index, which is referred to as the “Target Index.” However, CSLS will not track the “Target Index.” Instead it will track a newly created index called the Credit Suisse Long/Short Liquid Index. This new index is designed to correlate to the “Target Index” by tracking the performance of non-hedge fund, transparent market measures. In other words, it is a newly-created hedge fund replication index. Since an ETN can track any index it chooses, one can’t help but wonder why this ETN did not choose to track its Target Index.

In February 2009, Credit Suisse arbitrarily suspended the creation/redemption process on one of its products, a gold ETN. Unaware that the product was no longer tracking its underlying index, traders quickly pushed it to a 1,000% premium. It is easy to get burned when products that are supposed to track their indicative value no longer do so.

In April 2009, Credit Suisse delisted three ETNs but did not liquidate the funds and return the money to shareholders. Today, those three Credit Suisse ETNs are still trading OTC. Credit Suisse provides bids if you are willing to part with your shares at a price far below fair value.

Bottom line, Credit Suisse has yet to offer an exchange-traded product to the US marketplace that meets the operational standards US investors expect. Maybe Credit Suisse has turned over a new leaf with CSLS. Then again, since they were never punished for their prior acts of disrespect, there’s no reason to change now.

If none of this bothers you and you still want to invest in this ETN, additional background information is available in the CSLS prospectus and the CSLS summary.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Comments

One Response to “Do Not Buy CSLS”

  1. francis brown on April 1st, 2010 12:12 pm

    You have your head in the sand about derivatives. Having been an arbitrator for over 25 years with the NASD and Finra, I feel well qualified to address this point. They are the blight on the industray of Banking and Investing primarily because they are neither transparent nor regulated and have been the down fall of some of the largest financial institutions ever, example was the the largest and oldest and, supposedly, the most secure bank in the Britian about twenty years ago when this kid from SE Asia brought them down with derivitives playing primarily Japan. They are a dice roll at best. The politicians are scared to death of them because the only thing they understand about them is what the whores tell them. They should be outlawed along with ETNs and a few other slanted investemnts. Thank you, gb

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