RBS Enters ETN Arena With Timed S&P 500

December 11, 2010 by  
Filed under Commentary, ETF IPOs (New ETFs), ETNs

A new ETN sponsor entered the US market December 8, 2010 with a security designed to track the S&P 500 Total Return Index “timed” with a 200-day moving average.  RBS US Large Cap Trendpilot ETN (TRND) are exchange-traded notes issued by The Royal Bank of Scotland, more commonly known as RBS.

The timing methodology employed by TRND is to track the S&P Total Return Index (the “Index”) when it has been above its 200-day moving average for five consecutive days and to track the return of 3-month Treasury Bills when the Index has been below its 200-day moving average for five consecutive days.  A more complete description of the methodology is located in the TRND fact Sheet (pdf).

TRND has a unique variable investor fee (expense ratio) of 1.00% while it is tracking the Index and 0.50% while it is tracking T-Bills.  I’m sure many readers are now screaming that the fee is much too high for a simple strategy they could implement themselves.  Before you jump to that conclusion, keep in mind that a Do-It-Yourself implementation in a taxable account will incur a tax liability every time a switch between the Index and T-Bills occurs and for every dividend payment received.

Using TRND to implement the strategy should provide extremely tax-efficient returns as it pays no dividends and you incur a tax liability only when you ultimately sell.  The downside is that since TRND is an exchange-traded note (ETN) it is an unsecured debt obligation of RBS.

In contrast to Citigroup’s recent poorly executed entry in the ETN space, it appears RBS has its ducks lined up and the new RBS ETN website is setup to contain additional new products.  We welcome RBS to the exchange traded product space and wish them luck.  Additional information is located in the press release (pdf), summary page, and the prospectus (pdf).

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

Comments are closed.