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Credit Suisse closes 5 more ETNs

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Credit Suisse is shuttering five more ETNs next month, eliminating a pair of structured products that let investors bet on swings in stock markets and a trio of notes tied to oil prices.

The investment bank, which infamously closed the $1.9 billion VelocityShares Daily Inverse VIX Short-Term ETN (XIV) in February amid a maelstrom in which the S&P 500 tumbled 8.5% in five sessions, seems to be targeting smaller, less popular funds this time around. None of the funds set to shut Aug. 15 has more than $7 million in assets.

Retail interest in ETPs tied to volatility has dimmed since early February, even among offerings whose size dwarfs that of Credit Suisse’s two notes. The four largest products have seen total assets fall from nearly $4 billion to less than $2.5 billion. That figure excludes XIV, which saw assets plummet to $90 million at the time of its closing. On July 13, the investment advisor behind the REX VolMAXX Long VIX Futures Strategy ETF announced the end of that small fund.

Eric Balchunas, a senior ETF analyst with Bloomberg Intelligence, notes that Credit Suisse is keeping its more popular offerings in the volatility space, the VelocityShares Daily Inverse VIX Medium Term ETN (ZIV) and the VelocityShares Daily 2x VIX Short Term ETN (TVIX). The funds have 1.35% and 1.65% expense ratios, respectively, according to Morningstar.

“This is more about pruning products that aren’t selling as much, rather than getting out of the VIX world,” he said.

The funds that will close are the VelocityShares VIX Medium Term ETN (VIIZ), which has $7 million in assets and has gained 2.6% this year, and the VelocityShares Daily 2x VIX Medium Term ETN (TVIZ), which has about $1.8 million and is down 3.7% in 2018. The funds have 0.89% and 1.65% expense ratios, respectively.

Implied equity volatility was roughly three times higher when Credit Suisse killed the bigger fund on Feb. 6, the morning after a record spike in the CBOE Volatility Index.

“In an overall sense there has been a downturn in interest in VIX products,” Balchunas said. “XIV scared some smaller investors.”

Credit Suisse declined to comment about its plans to close the funds.

The bank is also shutting three notes tracking oil in mid-August, according to a statement. The Credit Suisse X-Links WTI Crude Oil Index ETN (OIIL), which has a 1.65% expense ratio, currently has about $4.1 million in assets. The AxelaTrader 3x Long Brent Crude Oil ETN (UBRT) and its three-times inverse sibling, ticker DBRT, have $5.3 million and $2.4 million in assets, respectively. Those funds have expense ratios of 1.35% and 1.65%, respectively.

These funds have the smallest beta scores, either positive or negative, indicating the least variability from market returns.
August 30

This isn’t Credit Suisse’s first time washing its hands of ETNs tracking crude. In 2016, the bank delisted two massively popular oil notes which had gained attention earlier that year as crude plummeted and investors, particularly millennials, started pouring cash into them.

A month later, Citigroup scooped up the strategies, slightly changed both tickers, and brought the notes back from the dead.

Bloomberg News