An exchange-traded note tied to natural-gas prices is vulnerable to the kind of losses that occurred last week in an ETN tracking U.S. stock volatility.
The CHART OF THE DAY compares the percentage gap between market prices and asset values for the notes. The natural-gas ETN is part of Barclays Plc (BARC)’s iPath series, and the other note comes from Credit Suisse AG.
“Our advice is simply to stay away,” Michael Shaoul, chief executive officer of Oscar Gruss & Son Inc. in New York, wrote yesterday in an e-mail. He compared the iPath notes to shares of a closed-end mutual fund, whose price can vary substantially from the value of its holdings.
The iPath note, whose value stems from the total returns on a Dow Jones-UBS index of natural gas, closed at premiums of more than 100 percent to net asset value from March 5 to March 22. The differential peaked last week at 134 percent.
Credit Suisse’s VelocityShares ETN reached an 89 percent premium on March 21 before the firm ended a one-month suspension on sales of new securities. The note plummeted 50 percent in the next two days, shrinking the gap to 6.9 percent. It’s designed to move twice as much each day as the Chicago Board Options Exchange Volatility Index, or the VIX.
Barclays stopped issuing the natural-gas ETN in August 2009. Kristin Friel, a New York-based spokeswoman, declined to comment on whether sales may resume.
To contact the editor responsible for this story: Nick Baker at firstname.lastname@example.org