ETF Trends
ETF Trends

ETF Spotlight on the iPath Short Extended Russell 2000 Total Return ETN (NYSEArca: RTSA), part of an ongoing series.

Assets: $6.7 million.

Objective: The exchange traded note tries to reflect the leveraged return on the inverse performance of the Russell 2000 Total Return Index, which tracks small-cap U.S. companies.

What You Should Know:

  • RTSA has an expense ratio of 0.50%.
  • Sector allocations include: Financial Services 20.60%, Technology 17.30%, Consumer Discretionary 14.38%, Producer Durables 14.00%, Health Care 12.52%, Materials & Processing 8.15%, Energy 6.69%, Utilities 3.72% and Consumer Staples 2.62%.
  • The fund has gained 37.38% over the last month, 66.05% over the past 3-months, but it is down 11.49% year to date.
  • The note is issued by Barclays. ETNs are debt instruments backed by the full faith and credit of the issuer. They follow an underlying index or product and anyone can buy them. Since they are debt instruments, if the issuer goes bankrupt, you become another creditor and you’ll have to get in line. [ETNs: Everything You Want to Know.]
  • “An increase in the level of the underlying index will have a negative effect on the repayment amount, whereas a decrease in the level of the underlying index will have a positive effect on the repayment amount,” according to the ETN’s fact sheet. “Because your investment in the ETNs is leveraged, any increase in the level of the applicable underlying index will result in a significantly greater decrease in the repayment amount, and you may receive less than your original investment in the ETNs at maturity or upon redemption.”
  • Most leveraged funds usually reset their exposure on a daily or, more recently, on a monthly basis. RTSA never resets exposure and delivers leveraged results over the lifespan of the ETN, writes Michael Johnston for ETFdb. As a result, the “path dependency” is removed, and the fund may offer leveraged exposure of 0.10x to 8x the benchmark index, according to the report.

The Latest News:

  • Last Wednesday, RTSA was up 17.9% at the close of the market, writes Murray Coleman for Barron’s. This feat was especially noteworthy since an ETF that tries to track the performance of the Russell 2000 was down only 3%, which suggests that RTSA may have reflected a negative 600% return on the Russell 2000.
  • “The information at the iPath site makes it difficult to determine exactly what the leveraging factor is — you should be able to find that type of information very easily right after going to the site,” commented Ian Naismith, portfolio manager at Sarasota Capital Strategies, in the Barron’s report. Naismith also notes that recent movements reveal that RTSA has been showing returns of seven to eight times the inverse of the Russell 2000.
  • “It’s levered to extreme levels. Whether that’s by design or not, it’s the most wild inverse fund I’ve seen so far,” added Naismith.

For past stories in this series, visit our ETF Spotlight category.

iPath Short Extended Russell 2000 Total Return ETN

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.