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.
Five new ETNs (exchange-traded notes), dubbed ETN+, from Barclays began trading yesterday (11/18/2009). When Barclays sold their iShares business, it appears that all their marketing and product naming people were also part of the deal. Here are the official names, but they won't give you any clue as to the leverage employed:
- Long B Leveraged Exchange Traded Notes Linked to the S&P 500® Total Return Index (BXUB)
- Long C Leveraged Exchange Traded Notes Linked to the S&P 500® Total Return Index (BXUC)
- Short B Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return Index (BXDB)
- Short C Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return Index (BXDC)
- Short D Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500® Total Return Index (BXDD)
Further analysis of the naming reveals no identifiable pattern. For example "Long B" refers to 3x while "Short B" refers to -1x. If you want -3x, then you need to buy the "Short D" note. The two notes with 2x leverage both happen to contain the letter "C" in their name, but this appears to be a random coincidence. Perhaps there is a code-breaker reading this that can help me out.
For the time being, I am going to boycott the official names, and instead, refer to these new products as:
- Barclays S&P 500 3x Long 2009 ETN+ (BXUB)
- Barclays S&P 500 2x Long 2009 ETN+ (BXUC)
- Barclays S&P 500 1x Short 2009 ETN+ (BXDB)
- Barclays S&P 500 2x Short 2009 ETN+ (BXDC)
- Barclays S&P 500 3x Short 2009 ETN+ (BXDD)
I suspect that someone is wondering why my "name" for each ETN contains "2009" when these notes are due to mature in 2014. Since the leverage is never reset in these products, I think it is much more important to know when the leverage was established as opposed to the maturity date. To be more precise, the leverage was probably established at the close on November 17, 2009, the day before they began trading. My guess is that Barclays plans on releasing additional series of these notes, perhaps every year.
Most critics of leveraged funds believe they should perform just the same as if you had bought additional shares on margin. Barclays is moving toward that goal with these new products.
