The law firm of Oakes & Fosher is currently investigating a particular exchange traded note, ETN, developed by UBS Financial Services. This particular product existed in a series of these UBS ETNs that were titled ETRACs. This specific product was called ETRACS ProShares Daily 3x Inverse Crude ETN linked to the Bloomberg WTI Crude Oil Subindex (WTID). Oakes & Fosher believes that the global COVID-19 pandemic has revealed this ETN product to be highly unsuitable for many individuals currently invested in it.
Exchange Traded Notes
An ETN is a debt security in which the purchaser is essentially providing the issuing company a loan as opposed to purchasing actual equity in the company. They are similar to bonds in this fashion. However, unlike bonds, the amount the investor is to be repaid when the security matures actually fluctuates over the life of the investment. An ETN is directly linked to the performance of a particular index. When the ETN is liquidated, the investor is supposed to then be paid back the current value of said index as opposed to the amount of the original loan.
The Risks Associated With These ETRAC Products
Many investors are unaware of how truly speculative these investments are. While the investor is supposed to be repaid the current value of the market index the particular ETRAC was linked to, the company’s ability to repay is entirely dependent upon its financial status. Even if said status does not match the index’s value. If the issuing company falters over the life of the investment, the amount they are able to repay may be dramatically lower than the value of the index. If the company is able to repay anything at all that is. Investors may be dumbfounded to find their investment is next to worthless while spending so long watching the index rise in value.
ETRACS ProShares Daily 3x Inverse Crude ETN linked to the Bloomberg WTI Crude Oil Subindex (WTID), along with the other ETRAC companies, played it incredibly fast and loose with investor funds. Not only were these products linked to incredibly volatile market indexes, but the products were actually purchased on leverage. This adds an entire new tier of risk as it introduces the possibility of multiplying an investor’s losses. When an exchange traded note like these ETRAC products utilizes leverage, they are essentially using borrowed funds to increase the possible reward of a rising index. However, with this increased possibility for reward comes an increased risk. A traditional ETN mirrors the index directly. The value of the note is identical to the value of the index. However, when leverage is introduced, a customer’s earnings could be double or triple the value of the index. However, this means that their losses could also be doubled or tripled should the value of the index decline. Essentially, these products invest in risky market indexes, while employing even riskier investment tactics, which can very easily lead to a loss of principal.
How Did COVID-19 Affect These Products?
The COVID-19 Pandemic has drastically affected just about every aspect of the global market. While the market is on decline, this is especially true for the more volatile market indexes that these ETRAC products were linked to–such as REITs, BDCs, and energy sector securities. However, since these products utilize leverage, they have fallen much lower than their respective indexes. Even if the indexes were to rise again during the life of the investment, the hit that these investments have taken during the COVID-19 Pandemic may have left them permanently damaged and unable to repay their issued notes. However, investors in these ETRAC products were not even allowed the opportunity to see if the indexes may rise again as they were forced to abandon ship. Because of the global market crash, ETRACS ProShares Daily 3x Inverse Crude ETN linked to the Bloomberg WTI Crude Oil Subindex (WTID) ceased trading on March 18th 2020 and began enforcing mandatory redemptions. This means that the life of the ETN was cut short, and investors were forced to liquidate their notes for the current index value, which, as already stated, is incredibly low due to this global pandemic. These mandatory redemptions caused investors to incur over a 60 percent loss in principal. While UBS Financial Services, and other advocates of ETRACS ProShares Daily 3x Inverse Crude ETN linked to the Bloomberg WTI Crude Oil Subindex (WTID) will claim that this was just a direct result of the market crash, this is actually not the case. The market crash simply revealed this product for what it actually was–an incredibly risky investment that forced investors to abandon ship.
Oakes & Fosher Can Help
Less than scrupulous securities brokers motivated to make the sale often rely on omitting or misrepresenting material facts about investments. Oakes & Fosher believes that UBS brokers misled financially unsuited investors into believing these ETNs were suitable for them. Investments ETRACS ProShares Daily 3x Inverse Crude ETN linked to the Bloomberg WTI Crude Oil Subindex (WTID) should never be recommended to individuals who are retired, have higher liquidity needs, have a lower risk tolerance, or have more conservative investment objectives. Oakes & Fosher dedicates its entire legal practice to helping investors across the nation. If you, or someone you know, have lost money being invested in ETRACS ProShares Daily 3x Inverse Crude ETN linked to the Bloomberg WTI Crude Oil Subindex (WTID), or any other UBS ETRAC product, please contact Oakes & Fosher for a free and private consultation. Oakes & Fosher handles cases on a contingency basis, which means there are no fees charged unless we collect for you.