UBS launches Risk On, Risk Off ETNs (ONN, OFF) - Top 5 Best Performing ETFs
01 December 2011 - 9:34PM
Zacks
As the markets continue to experience wild swings over extremely
short periods of time, many investors have looked to alternative
products in order to help boost returns in these shaky
environments. While leveraged and commodity ETFs have become
extremely popular, funds tracking volatility indexes, such as VXX,
have also gained a huge following. Yet, many investors are
beginning to feel the often devastating impacts of contango in
these products, pushing them to consider new ways to express their
views on the global economic situation. For these investors, the
recent launch of the Risk On (ONN) and Risk Off ETNs (OFF) from UBS
could be welcomed news.
The two products seek to allow investors to either implement a
‘risk on’ or ‘risk off’ strategy via a single exchange-traded
product, something that may be cheered by a variety of investors
and traders. This could include those seeking to hedge their
portfolios as well as those looking to just make a short-term play
on the overall health of the markets. “Correlation between asset
classes and across geographic regions has risen dramatically over
the past two decades as investors move in concert in reaction to
changes in the global economic outlook,” said Christopher Yeagley,
Managing Director and US Head of Equity Structured Products. “These
two ETNs are designed to give investors the ability to take
advantage of this in a straightforward manner: if they expect
economic growth, they can purchase ONN to express a “risk on” view,
and if they don’t expect growth, they can purchase OFF to express a
“risk off” view.” (see Commodity Currency ETFs Surge On Global
Liquidity Push)
In terms of holdings, the risk on product seeks to go long in
assets that tend to outperform when global markets are surging,
leaving the basket long in products such as commodities, currencies
such as the euro, and broad stock markets. Meanwhile, the fund will
also pair this with a short position in a variety of lower risk
currencies as well as shorting a few bond futures. Meanwhile, the
risk off product—unsurprisingly—seeks to do the exact opposite,
going short in commodities while going long in low risk currencies
such as the franc and the yen while also going long in bonds such
as 10 Year Treasury bond futures, 30 year German Bund Futures, and
10 Year Gilt Futures. In summary, the top five long and short
holdings of each ETN are listed below:
Top Five Long & Short Holdings of ONN:
Long Holding
|
Weighting
|
Short Holding
|
Weighting
|
Crude Oil
|
20%
|
10 Year US Notes Futures
|
-16%
|
Brent Oil
|
14%
|
Japanese Yen Futures
|
-12%
|
Euro Futures
|
14%
|
30 Year German Bund Futures
|
-12%
|
Corn Futures
|
10%
|
10 year Gilt Futures
|
-6%
|
S&P 500 ETF Trust (SPY)
|
9.2%
|
Swiss Franc Futures
|
-4%
|
Top Five Long & Short Holdings in OFF:
Long Holding
|
Weighting
|
Short Holding
|
Weighting
|
10 Year US Notes Futures
|
16%
|
Crude Oil
|
-20%
|
Japanese Yen Futures
|
12%
|
Brent Oil
|
-14%
|
30 Year German Bund Futures
|
12%
|
Euro Futures
|
-14%
|
10 year Gilt Futures
|
6%
|
Corn Futures
|
-10%
|
Swiss Franc Futures
|
4%
|
S&P 500 ETF Trust (SPY)
|
-9.2%
|
Overall, the products seem to be mirror images of each other,
perfectly matching their counterpart in terms of holding
percentages. However, there is one key difference that investors
need to be aware of between the two; expenses. The risk off ETN
charges investors 1.15% a year as a tracking fee while ONN charges
investors 0.85% for its services. Yet, while ONN does charge less
for its services on the tracking fee front, the product does have
an ‘annual distribution amount’ that will be equal to 1% per year
that investors also need to consider if they purchase this product
(OFF doesn’t have a similar stipulation).
Fisher-Gartman Risk Index
Both funds are based on the Fisher-Gartman Risk Index which is a
benchmark created by Mark Fisher and Dennis Gartman. The two
individuals sought to develop a formula that defines the
concepts—in asset terms—of the standard phrases ‘risk on day’ and
‘risk off day’ seeking to rise when the economic outlook is
positive and slump when the forecast turns negative. The
value-based target weightings for the long and short positions are
150% and 50%, respectively, and the Index is rebalanced quarterly
to return the weightings to these target levels (also see Top Three
Precious Metal Mining ETFs).
The two funds could be popular with traders looking to make
plays on the broad market but are weary of investing in leveraged
products or funds such as VXX which can experience significant
contango problems over long holding periods. Nevertheless, the
credit risk of the underlying issuer of the ETN, compounded with
the relatively high cost of these products, could result in a
severe fight for assets by these upstart exchange-traded products.
So while the Fisher-Garman Risk Index may be appealing to some
investors, the fund looks to have a real fight on its hands in its
attempt to get assets and trading volumes higher in the near term
(read Avoid Turmoil With The Community Bank ETF).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30
Days. Click to get this free report >>
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days. Click
to get this free report
Etracs Fisher-Gartman Risk Off Etn (AMEX:OFF)
Historical Stock Chart
From Jun 2024 to Jul 2024
Etracs Fisher-Gartman Risk Off Etn (AMEX:OFF)
Historical Stock Chart
From Jul 2023 to Jul 2024