Two Barclays iPath ETN products triggered their early automatic termination and redemption features on September 7, 2012. The defining moments occurred when the intraday indicative note values of iPath Short Extended S&P 500 TR Index ETN (SFSA) and iPath Short Extended Russell 1000 TR Index ETN (ROSA) dropped to levels of $10 or less.
Redemption values of $9.9312 for SFSA and $9.8168 for ROSA were determined by the closing indicative values on the trigger day. Today (9/13/12) was their last day of trading, and cash payments equal to the redemption values will be made on September 14, 2012.
Analysis/Opinion: These two products were doomed from the beginning. At the time of their November 30, 2010 launch, I pointed out many of the shortcomings in Eleven New iPath ETNs With Indescribable Leverage. The “no-reset” leverage feature was of particular concern. iPath Long Enhanced S&P 500 VIX Mid-Term Futures ETN (former ticker VZZ) was the first of the bunch to bite the dust after just seven months of trading. The ten other ETNs that were part of that 2010 launch are perpetual members of ETF Deathwatch.
An excerpt from my 2010 review of SFSA and ROSA:
I believe there is nearly a 100% chance that each of these indexes will move in excess of 37% from current levels sometime in the next 10 years. Therefore, there is nearly a 100% chance that at least half of them will not reach maturity.
I will repeat what I said when Barclays came out with their first suite of no-reset leveraged ETNs: Be careful what you wish for. For all the leveraged fund critics that either do not like or do not understand daily (or monthly) reset of leverage and want a vehicle without path-dependent performance, your wish has come true. However, unless you bought them yesterday, you will not be getting the exact 2x or 3x index exposure you desire. You can’t have everything.
ETF and ETN closures and announced closures for 2012 now number 85, and they could easily top 100 before the year is over. Additional information about these iPath redemptions can be found in the SFSA press release (pdf) and ROSA press release (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.