Market Overview

Who's Next On The ETP/NAV Hit Parade? (TVIX, GAZ, VXAA)


Admit it. You watched the stunning decline decline in the VelocityShares Daily 2x VIX Short-Term ETN (NYSE: TVIX) on Thursday and wondered: Which exchange-traded product could be next? That's just human nature and there's nothing wrong with wondering what ETF or ETN could be the next victim of a seriously skewed net asset value situation.

While a plunging ETN doesn't necessarily signal credit risk for the issuing bank in this case Credit Suisse (NYSE: CS), ETNs trading at rich premiums to their indicative values could indeed be vulnerable to a potential TVIX sequel.

Credit Suisse is trying to ameliorate the situation with TVIX by allowing new share issuance. Only time will tell if that gambit works. In the meantime, there are other ETNS (and at least one ETF) out there that are either trading at levels that are a tad high relative to their indicative values or that have reputations for having done so in the past.

Take a look at this potentially notorious group.

VelocityShares 2x Long Copper ETN (NYSE: LCPR) Ever hear of the VelocityShares 2x Long Copper ETN? We didn't think so. Apparently, a lot of folks haven't because it doesn't look like the ETN has traded since March 16.

LCPR, which made its debut last month, is designed "to provide long exposure to two times (2x) the daily performance of the S&P GSCI Copper Index ER (the “Index”) plus a daily accrual equal to the return that could be earned on a notional capital reinvestment at the three month U.S. Treasury rate as reported on Bloomberg under ticker USB3MTA, less the daily investor fee," according to the fund's product page.

Given the light volume, LCPR's 6.5% premium to its NAV may not be a big concern, but if the ETN's volume rapidly increased and the premium to NAV spiked, well, that might not be good.

UBS E-TRACS 1Mo S&P 500 VIX Futures ETN (NYSE: VXAA) Another one that isn't going to win any ETN volume contests (less than 1,000 shares per day), VXAA could be viewed as controversial just for having "VIX" in its name. As of this writing, the ETN's indicative value for March 22 had not been updated, but as of March 21 the market closing price was roughly 10% higher than the indicative value.

iPath DJ-UBS Natural Gas TR Sub-Index ETN (NYSE: GAZ) In the essence of simplicity, this what the situation is with GAZ. It closed at $4.90 on Thursday. It had an indicative value of $2.44 on Thursday. GAZ has over $37 million in AUM, 15.3 million shares outstanding and strong average daily volume. See where we're going with this? There is a potential problem here.

Market Vectors China ETF (NYSE: PEK) We noted there could be an ETF on this list and it comes in the form of the Market Vectors China ETF. Of the products on this list, PEK's tendency to trade above NAV is probably the least concerning situation. The ETF is the only option U.S. investors have for getting exposure to China's A Shares market and to accomplish that aim, PEK uses swaps and derivatives. The demand for A Shares access and the use of derivatives may be the contributing factors to PEK's tendency to trade above its NAV.

Since its inception, PEK has regularly traded at a premium, which has generally ranged from 2% to 10%, according to Thursday'closing price: $35.93. Thursday's NAV: $33.09.


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