These 2 ETFs Lost 90% Of Their Assets In A Day

In the last few weeks, two exchange-traded products lost almost all their assets.

A few weeks ago, the WisdomTree Australia & New Zealand Debt Fund (AUNZ) made headlines when it lost about 88% of its assets in a single day. From assets under management (AUM) totalling $158 million the day before, AUNZ was left with only $19 million in assets on Sept. 30.

A single institution―Franklin Templeton Investments―was responsible for the stunning decline in assets after selling its position, and highlighted how concentrated ownership in some ETFs can be.

Citing an unnamed source, Bloomberg reported that Franklin cashed out of its position in the fund―which is up more than 10% year-to-date―and put it into investments "with less exposure to interest-rate risk, such as investment-grade credit and gold."

While not necessarily a death knell for the ETF, the big asset drop in AUNZ makes keeping the fund open more challenging. Last month, WisdomTree shuttered six ETFs due to lack of investor interest. Those funds had assets ranging from $1 million to $17 million.

Deutsche Bank ETN Gutted

AUNZ isn't the only ETF that's seen one big owner heading for the exits recently. In fact, just last Wednesday, the Deutsche Bank FI Enhanced Global High Yield ETN (FIEG) lost more than 90% of its assets. Today FIEG has a mere $18 million in assets, down from nearly $350 million at the start of the month.

FIEG is one of several bespoke products designed for Fisher Asset Management and its clients. Fisher declined to comment on the sale, but one can only speculate that the widely publicized troubles ailing Deutsche Bank, which heightens the exchange-traded note’s counterparty risk, may have had something to do with the exodus from FIEG.

Bolstering that view are the inflows into the UBS AG FI Enhanced Global High Yield ETN (FIHD), which saw its assets jump $297 million, or 160%, last Tuesday.

FIHD―which launched in February of this year―is another custom-made product for Fisher Investments. FIHD, FIEG and the $1.4 billion Barclays ETN+FI Enhanced Global High Yield ETN (FIGY) are all 2x-leveraged products on the same underlying MSCI World High Dividend Yield Index.

These three ETNs are nearly identical, though there are some differences in the products. For example, FIHD's leverage resets quarterly, while FIEG's leverage doesn't reset unless its effective leverage factor rises above 2.67x, and FIGY's leverage doesn't reset unless its effective leverage factor falls below 1.6x.

In terms of performance, all three ETNs have performed similarly, with gains of 20-22% since February, when FIHD launched.

Returns For FIEG, FIHD, FIGY Since Feb. 22

Perhaps Fisher swapped out of FIEG and into FIHD because of the latter's more predictable leverage exposure. More likely, they're simply shying away from Deutsche Bank ETNs and the counterparty risk associated with them. FIHD and FIGY, issued by UBS and Barclays, respectively, may simply be seen as safer investments in the current environment.

The latest redemptions in FIEG essentially halved Deutsche Bank's total ETN assets. The DB Gold Double Long ETN (DGP) is now the largest Deutsche ETN, with a relatively modest $126 million in AUM.

Contact Sumit Roy at [email protected].