Lights Going Out For OFF and ONN

May 2, 2014 by  
Filed under Commentary, ETF Closings, ETNs

The creators of UBS AG ETRACS Fisher-Gartman Risk On ETN (ONN) and UBS AG ETRACS Fisher-Gartman Risk Off ETN (OFF) thought these ETNs would live for 30 years and set the due date accordingly.  However, the November 27, 2041 maturity will never be reached.  Their values will be frozen on May 6, their trading will cease on May 8, and their settlement amount will be payable on May 9.

Back in 2011, UBS and Gartman brought these ETNs to market, presumably to capitalize on the common trader phrases of “Risk On” and “Risk Off” that were extremely popular at the time.  Many analysts praised these vehicles, stating they were an easy way to play the seemingly persistent bipolar nature of the market.

My analysis arrived at a different conclusion and was highlighted in New Risk On Risk Off ETNs Tuned to Recent Market Conditions.  The products were highly optimized to the five-year backtest period and a time when the definition of “risk” was quite unique.  The inability for the underlying index to change its definition of risk as the market evolved was a major flaw.  Within a year of their launch, the risk definitions of OFF and ONN were obsolete, and so were the products themselves.

OFF was the first of the pair to join ETF Deathwatch in October 2013ONN followed suit in March 2014.  The two ETNs combine for about $22.8 million in assets, significantly more than three other ETRACS ETNs remaining open.  ETRACS 1x Monthly Short Alerian MLP ETN (MLPS), ETRACS Bloomberg CMCI Industrial Metals TR ETN (UBM), and ETRACS Bloomberg CMCI Livestock TR ETN (UBC) have less than $6 million each.

Owners and traders of OFF and ONN need to take extra precaution when buying and selling shares next week.  According to the press release, their values will be frozen after the close on Tuesday May 6, yet they will continue to be listed and traded until the close on May 8.

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.

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