Van Eck Global has made a bid to convert the assets for six Merrill Lynch-sponsored HOLDRS into its Market Vectors ETF lineup. The HOLDRS, now part of the Van Eck lineup are the Oil Services (OIH), Semiconductor (SMH), Pharmaceutical (PPH), Biotech (BBH), Retail (RTH), and Regional Bank (RKH).
Van Eck expects the exchange offers to finalized late in the fourth quarter of 2011. The exchange offer requires approval by individual HOLDRS investors. By participating in the exchange offers, HOLDRS investors will authorize the conversion of the stocks in the HOLDRS Trusts into a diversified basket of stocks that align with the indices underlying the new Market Vectors ETFs.
The transaction is structured to be an equal value exchange. This means the value of the shares of the new ETF received by investors participating in the exchange will be expected to have the equivalent value to the tendered HOLDRS (based on the underlying securities as of the close of trading on the date the exchange offers expire).
Investors participating in the exchange offers will not bear any costs relating to the exchange transaction, although they may be subject to fees charged by their financial intermediaries.
At the beginning of October the six HOLDRS subject to Van Eck’s exchange offers had approximately $3.3 billion in aggregate assets and a combined 30-day average daily trading volume of approximately 19.54 million shares.
Unlike traditional index ETFs, the HOLDRS product structure is rigid and portfolio holdings are not periodically rebalanced to reflect changes within an industry sector. As a result, certain sector HOLDRS are poor barometers for the industry sectors they propose to follow. For example, the Oil Services HOLDRS Trust, created in 2001, does not include some of today’s important companies within the industry, such as FMC Technologies (FTI) and SeaDrill Limited (SDRL).
The new Market Vector ETFs will be linked to indexes that own the most liquid stocks within that particular industry. The top 25 constituents based on full market capitalization and three-month average daily trading volume are included in each index. The indexes include companies that derive most of their revenues from the relevant industry; individual company weightings are capped at 20 percent. The indexes will be reviewed semi-annually, with weighting caps applied quarterly.
The corresponding ticker symbols and indexes are listed below:
OIH — U.S Listed Oil Services 25
SMH —U.S. Listed Semiconductor 25
PPH — U.S. Listed Pharmaceutical 25
BBH — U.S. Listed Biotech 25
RTH — U.S. Listed Retail 25
RKH — U.S. Listed Bank and
Brokerage 25 Index
Annual expense ratios for these six Market Vectors will be capped at 0.35 percent. •