Thursday, January 21, 2016

Barclays Oil ETN Is Trading at A 40% Premium To Its Benchmark (OIL)

Or, as the writer puts it, "completely unhinged".
From Barron's Focus on Funds:

Barclays Oil ETN is Completely Disconnected from Commodity’s Price
Another oddity has developed in the market for exchange-traded notes.
Barclays warned investors this week that the market price of a popular oil-tracking ETN has jumped to a massive premium over the value of the index it’s designed to track. While oil prices have careened lower in January, the ETN’s price hasn’t fallen by nearly the same magnitude.
The $534 million iPath S&P GSCI Crude Oil Total Return Index exchange-traded note (OIL) has surged to a more than 40% premium over the so-called intraday indicative value of the benchmark it’s designed to mimic, according to a notification sent by Barclays to investors.
Here’s the upshot for investors: Stay far away from this ETN, which is now completely unhinged from the price of any commodity. New buyers could be vulnerable to a massive collapse should the price of the ETN and its underlying index snap back in line.
The ETN’s index had fallen by about 35% from Jan. 1 through Jan. 20, but the ETN’s price only fell by only about 12% over the same period, according to FactSet. The ETN closed at $5.51 on Wednesday and the underlying value is currently at around $3.69. That’s a nearly 50% premium! Unlike exchange-traded funds, ETNs are unsecured debts issued by banks that promise the return of an index. They directly hold no assets, and, since they’re effectively bonds, these notes are only as good as the credit of the issuing bank....MORE
Also at Focus on Funds:
UBS Shuts Two MLP ETNs After Steep Declines