Risk of Cash Transactions: Unlike most other ETFs, the Fund expects to effect creations and redemptions for cash, rather than in-kind securities.
Index Tracking Risk: The Fund’s return may not match the return of the Egypt Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to the Egypt Index and incurs costs associated with buying and selling securities, especially when rebalancing the Fund’s securities holdings to reflect changes in the composition of the Egypt Index and raising cash to meet redemptions or deploying cash in connection with newly created Creation Units.
Egypt closed its stock market last week with the last trading taking place on Thursday. Van Eck continued to accept cash for new shares on Friday and issued a press release on Monday (1/31/11) suspending further share creation (pdf). However, it was too late and the damage had already been done.
Van Eck had $11.7 million in EGPT as of Thursday’s (1/27/11) close and accepted $12 million in cash on Friday (1/28/11) for new shares. $12 million that cannot be deployed. Because Van Eck allows creations and redemptions in cash and didn’t suspend share creation in a timely manner, EGPT now holds about 50% in cash.
Question 1: How many of the people that bought EGPT on Monday for a 12% premium understood that it held 50% in cash? Since the portfolio is now 50% in cash, buyers acquired a heck of a lot of cash at a 12% premium.
Question 2: If the Indicative Value of $15.60 at Monday’s close correctly accounts for the 50% cash allocation (and I believe that it does), then does that mean the 12% premium ($17.50 closing price) actually represents a 24% premium on the underlying 50% of assets invested in equities?
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.