A Look at the Solid State Drive ETN

ETF issuers must love the technology sector and we're not just saying that because tech accounts for a significant percentage of the S&P 500 and nearly has an entire exchange all to itself in the Nasdaq. Those facts are good for creating bland tech ETFs like the Technology Select Sector SPDR (NYSE: XLK) and the PowerShares QQQ (Nasdaq: QQQ).

Tech is also good for generating some interesting sub-sector ETFs such as the First Trust ISE Cloud Computing Index Fund (NYSE: SKYY) and the First Trust Nasdaq CEA Smartphone Index Fund (NYSE: FONE).

Add to the list of obscure tech exchange-traded products the UBS ETRACS ISE Solid State Drive ETN (NYSE: SSDD), which made its debut on Sept. 15. Believe it or not, SSDD has a double-leveraged friend in the UBS ETRACS Monthly 2x-Leveraged ISE Solid State Drive ETN (NYSE: SSDL), but we'll focus on the plain vanilla play for today.

As an ETN, there is some counterparty risk, but despite its recent woes with a rogue trader, UBS does have investment grade ratings from Fitch, Moody's and Standard & Poor's. SSDD has an expense ratio of 0.65%.

The case for SSDD lies in the fact that the growth of cloud computing and mobile devices such as the iPad are a boon for solid state drives. Should solid state drive makers be able to lower prices compared to hard disk drives, that will only mean more good news for SSDD.

Solid state drive use has been growing in recent years. From ETFdb.com: “SSDs are now used in a number of laptop computers, and are being utilized by a number of different industries including trading firms and streaming media providers.”

Investors should note the index SSDD tracks was created on Aug. 26, so there's not much in terms of historical data. That said, most tech investors are probably familiar with some of SSDD's top holdings which include Western Digital (NYSE: WDC), Seagate Technologies (NYSE: STX), SanDisk (Nasdaq: SNDK) and Micron (NYSE: MU). Fusion-io (NYSE: FIO) is the ETN's top holding with an allocation of 16.2%.

Here's how to look at SSDD...

Bull case: There is probably more to be said for the long-term bull case than a bearish case because the trends in the tech sector are supportive for the solid state drive industry.

Bear case: The bear case is more about SSDD, not the solid state drive theme. If the ETN fails to attract enough assets and daily volume, it might disappear, leaving investors to search for other ways of gaining solid state drive exposure.