The Risky Oil ETF That Millennials Loved Is Getting Delisted
Watch out millennials, one of your most popular investments is about to cause you some major headaches.
Earlier this year, research from online brokerage TD Ameritrade Holding Corp. showed that a particularly risky ETF was attracting investors from the millennial demographic far more than other age groups. Yesterday, Credit Suisse AG announced its intent to delist and suspend further issuance of that very ETF.
In a press release, the firm said it would shut down the VelocityShares 3x Inverse Crude Oil ETN and the VelocityShares 3x Long Crude Oil ETN on Dec. 8, "with a view to better aligning its product suite with its broader strategic growth plans." Shares saw a precipitous drop over the past few years, losing 98 percent of their value since November of 2014.
While it's not uncommon to liquidate an ETF, delisting can create major issues, says Bloomberg Intelligence Analyst Eric Balchunas.
"When an issuer chooses to delist and then halt creations, that can create a dangerous scenario for the investors in what is already a highly dangerous product," he said. Since the notes will not be called, redeemed, or liquidated, owners must sell their holdings by Dec. 8 unless they want to try to do that in an extremely illiquid market, Balchunas adds.
Perhaps it's in millennials' best interest to be forced out of this position. The VelocityShares Daily 3x Long Crude ETN (UWTI) was one of the riskiest ETFs on the planet. Tied to the oil market, with triple leverage that gets reset each day, it could make huge gains when prices went up, but with a structure that causes returns to corrode over time. It also had credit risk due to it being an exchange-trade note, which essentially makes it an unsecured debt obligation of the issuer.
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