UBS Attempts Solid State Drive ETN Offering

September 22, 2011 by  
Filed under Commentary, ETF IPOs (New ETFs), ETNs

UBS released two exchange-traded notes (“ETNs”) on September 15 that intend to track the performance of the solid state drive industry.  The underlying index was created on August 26, has no performance history or back test information, and is far from being a pure play on the industry.

UBS ETRACS ISE Solid State Drive Index ETN (SSDD) and UBS ETRACS Monthly 2xLeveraged ISE Solid State Drive Index ETN (SSDL) provide exposure to the performance of the ISE Solid State Drive Index, minus the 0.65% tracking fee (note: this fee is much lower than the outrageous 5.35% UBS charges on six other ETNs).  SSDL provides 200% exposure with the leverage reset monthly.

The underlying index was created solely with the purpose “to provide investors with a product allowing them to quickly take advantage of both event-driven news and long term economic trends as the market for solid state drive technology continues to evolve.”

Index construction uses a double equal weighting process.  First, the allocations to drive manufacturers and component manufacturers are equal weighted at 50% each.  Then, all constituents within each category are equal weighted.  There are currently just eleven stocks in the index.  The resulting allocation “should” consist of four drive manufacturers at 12.5% each and seven component makers at 7.14% each. 

However, the Index Methodology Guide (pdf) includes an average daily dollar value factor as part of the quarterly rebalancing, making the final result less obvious.  After last Friday’s rebalancing operation, the stock weightings are Silicon Motion Technology ADR (SIMO) 11.0%, SanDisk (SNDK) 10.4%, Marvell Technology Group (MRVL) 10.4%, Micron Technology (MU) 10.2%, STEC (STEC) 9.6%, Spansion Class A (CODE) 9.6%, LSI Corporation (LSI) 9.1%, OCZ Technology (OCZ) 7.8%, Seagate Technology (STX) 7.6%, Western Digital (WDC) 7.4%, and Fusion-io (FIO) 7.0%.

The list of constituents should make it obvious to those following this industry that these ETNs are not pure plays.   Additional information: SSDD overview, SSDL overview, combined fact sheet (pdf), and combined 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.

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