Lehman In Your ETF's Name Is Not a Worrisome Thing | ETF Trends

A number of exchange traded fund (ETF) investors are left wondering, “What is in a name, particularly those funds with Lehman in the title?”

At times like these, you can forgive those who see a name synonymous with “bankruptcy” in the title of anything. For example, there is the Lehman 1-3 Year Treasury Bond (SHY) and the Lehman TIPS Bond Fund (TIP).

These and other funds would lead many to think that they’re in the doldrums, taking their lumps amid the credit turmoil, with nothing to their name or to those who put their money into them. But in reality, they are doing very well, Mitch Tuchman for Seeking Alpha reports. Especially right now, as the credit crisis has sent investors seeking shelter in areas that include Treasury bonds.

Tuchman explains that indexes are licensed to ETF providers, and Lehman Brothers happens to be the largest provider of fixed income indexes. Lehman simply decides how the index is constructed and which debt securities go into a certain index.

Unlike exchange traded notes (ETNs), which are as good as the credit of the issuer, ETFs don’t share their risk of default. Lehman did have three ETNs, which may be going under, since Barclays said they won’t be assuming the debt of those funds. Fortunately, most of the $15 million in them was probably seed money.