Barclays Bank has expanded its iPath suite with another crude oil-related exchange traded note, potentially positioning the new ETN has a better alternative to its older, more popular offering.
Barclays recently launched the iPath Series B S&P GSCI Crude Oil Total Return Index ETN (NYSEArca: OILB). OILB comes with a 0.45% expense ratio.
OILB will try to reflect the performance of the S&P GSCI Crude Oil Total Return Index, which is comprised of West Texas Intermediate crude oil futures.
Along with its announced launch of OILB, Barclays will be suspending further sales from inventory and any further issuance of the iPath Crude Oil Futures ETN (NYSEArca: OIL), along with waiving the minimum early redemption size of 50,000 old ETNs for a limited period.
The lower fee structure of OILB, compared to OIL’s 0.75 expense ratio, and the suspension of further creations and lowered threshold for redemptions in OIL suggest that Barclays is trying to steer investors toward the newly created OILB.
Moreover, traders who stick with the older OIL ETN may be negatively impacted as an ETN without new creations may act more like a closed-end fund and trade at a high premium. Investors buying an ETN at a premium may experience a significant loss if they sell the ETN at a time when such premium is no longer present,
On Monday, OIL was trading at a 3.78% premium to its net asset value, according to Morningstar data. OIL also traded with a premium of as high as 41% in January after the issuer suspended creations.
Further fueling the price disparity between the OIL ETN and its underlying index, Barclays implemented a 50-cent per-share fee on any new share creation of the ETN last year.
Potential investors should also be aware that ETNs are not exchange traded funds. ETNs are debt securities issued by financial institutions that promise to pay the return of an index, minus fees and taxes. Consequently, investors are exposed to the credit risk or the possibility the underwriting bank goes bankrupt. The note can be vulnerable if the issuer gets into financial trouble, otherwise known as a default. With an ETN, an investor can lose some or all of their investment if the ETN issuer goes under.
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