Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

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zx14rr
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Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by zx14rr »

UBS has today, 12/13/2019, announced a tender offer to exchange A share Exchange Traded Notes (ETN) for B share ETNs. Per my discussion with Vanguard Corporate Actions Team today, Vanguard has made the decision not to allow clients to participate in the exchange offer. After the exchange offer period expires, UBS plans to call the A share ETNs. Because of Vanguard's decision not to allow clients to participate in the offer, holders of the following ETNs will be liquidated by UBS at what price is anyone's guess: AMU, BDCL,BDCS, CEFL, DJCI, MPLI, MORL, UCI.

So, any of you Vanguard clients who depend on the large dividend income from these holdings for your retirement, Vanguard says too bad.

Back in January 2019 Vanguard prohibited all clients from purchasing any of these types of holdings. This is the final move by Vanguard to make you liquidate these holdings no matter how long you have held them, but of course Vanguard knows best what is good for you and your particular situation.
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by Dale_G »

So move your class A ETN shares to any other brokerage that will accept them, then do the exchange for the B shares. A hassle, but you can keep the investment.

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zx14rr
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by zx14rr »

The Corporate Actions Team didn't even know what happens if you don't participate in the offer so how did the "Committee" who made the decision to not allow clients to participate know of the consequences of the decision they made. As a very long-time Vanguard client, the Vanguard decision making that results in making clients jump through hopes merely to maintain the status quo really perplexes me.
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by jcar »

Certainly these notes are rather far out on the risk spectrum. Still I find amazing there dictating to clients how and in what products they can invest. I'm a long time Flagship client but a few months ago I did a significant in kind transfer to another brokerage. I'm just not as comfortable with customer service, my dedicated advisor, etc. If this were to happen to me I'd do an in kind move immediately. Plenty of other places to invest without limitations.
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by BigPrince »

Why do you hold this type of asset with Vanguard?
not4me
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by not4me »

zx14rr wrote: Fri Dec 13, 2019 7:35 pm holders of the following ETNs will be liquidated by UBS at what price is anyone's guess


Back in January 2019 Vanguard prohibited all clients from purchasing any of these types of holdings.
OP, I understand your frustration, but appreciate you posting here for the benefit of others in a couple of ways.

The 1st phrase in the above seems to be the answer to your question of the corporate actions team -- if not tendered, then liquidated. While no one can know the exact price of anything in the future, the process is probably laid out in the prospectus. I know, I know...who reads those? But every so often there are posts asking about ETNs & while rare, what you are going through happens. I think some take warnings that it could happen as alarmist....but you know better now & thanks for alerting others!

The 2nd phrase refers to a policy change with Vanguard if I recall right. Meaning that there were others included. I think that was Vanguard's way of saying if you want to hold these, best move them to another broker. Bad time of year for you to unexpectedly have to try & get that done quickly enough, but for others holding similar investments...beware of what can happen & act now
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by Scooter57 »

BigPrince wrote: Fri Dec 13, 2019 11:20 pm Why do you hold this type of asset with Vanguard?
A person whose holdings were in Vanguard might have inherited or been gifted these shares. If they had a significant capital gain in a taxable account it would have made sense to hold them.

There are several kinds of investments that Vanguard will let you hold in situations like this but not buy.
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by BigPrince »

Scooter57 wrote: Sat Dec 14, 2019 1:22 pm
BigPrince wrote: Fri Dec 13, 2019 11:20 pm Why do you hold this type of asset with Vanguard?
A person whose holdings were in Vanguard might have inherited or been gifted these shares. If they had a significant capital gain in a taxable account it would have made sense to hold them.

There are several kinds of investments that Vanguard will let you hold in situations like this but not buy.
If I inherited this, I would have transferred them to my preferred financial firm with no taxable gain.
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by Scooter57 »

Vanguard is (or was) many people's preferred financial firm. They were offering free trades to Flagship customers back when that actually was worth something. And back before they decided to be the world's biggest firm, their customer service was very helpful.

They have really changed over the past decade. The main thing that keeps me with them is the better rates on their Prime Money Market fund, but I no longer have the warm fuzzies and loyalty I had toward them in the past.
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by Cheez-It Guy »

Scooter57 wrote: Sat Dec 14, 2019 3:12 pm Vanguard is (or was) many people's preferred financial firm. They were offering free trades to Flagship customers back when that actually was worth something. And back before they decided to be the world's biggest firm, their customer service was very helpful.

They have really changed over the past decade. The main thing that keeps me with them is the better rates on their Prime Money Market fund, but I no longer have the warm fuzzies and loyalty I had toward them in the past.
I didn't realize all they had to do was decide. Don't you think this result had something to do with investor opinion at some point along the way?
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by stan1 »

I'd find a brokerage that will do what you want and transfer the holding there as soon as possible. Hopefully UBS gave enough notice to do this.

Vanguard has never been a full service brokerage.

I'd focus your energies on figuring out the outcome you want then the steps you need to take to achieve that.
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by Scooter57 »

Cheez-It Guy wrote: Sat Dec 14, 2019 3:24 pm I didn't realize all they had to do was decide. Don't you think this result had something to do with investor opinion at some point along the way?
I don't think so. I've been with Vanguard since 1988 and have yet to have them ask me a single question about my experience investing, my needs as an investor, or what I think would make them more helpful to their customers. They have several times told ME how they think I should be handling my assets, through reps who haven't struck me as very well-educated and once with a supposed investment advisor who didn't seem to understand the tax impact of what he was telling me to do with my current taxable allocation.

I don't know enough about these particular ETNs to know why they would decide to do this to holders, but my guess is that it has something to do with expenses on their end, not the decisions their customers make. I could buy all kinds of poorly chosen stocks on their brokerage platform if I wanted to. They don't censor what people buy. But my undestanding is that these brokerages make some kind of tiny profit on trades even when they don't charge for them.
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by Cheez-It Guy »

Scooter57 wrote: Sat Dec 14, 2019 4:59 pm
Cheez-It Guy wrote: Sat Dec 14, 2019 3:24 pm I didn't realize all they had to do was decide. Don't you think this result had something to do with investor opinion at some point along the way?
I don't think so. I've been with Vanguard since 1988 and have yet to have them ask me a single question about my experience investing, my needs as an investor, or what I think would make them more helpful to their customers. They have several times told ME how they think I should be handling my assets, through reps who haven't struck me as very well-educated and once with a supposed investment advisor who didn't seem to understand the tax impact of what he was telling me to do with my current taxable allocation.

I don't know enough about these particular ETNs to know why they would decide to do this to holders, but my guess is that it has something to do with expenses on their end, not the decisions their customers make. I could buy all kinds of poorly chosen stocks on their brokerage platform if I wanted to. They don't censor what people buy. But my undestanding is that these brokerages make some kind of tiny profit on trades even when they don't charge for them.
What I meant was, don't you suppose that along Vanguard's journey to becoming the largest investment firm (by far), their products and / or services had to resonate with enough investors or institutions so as to continue to draw assets and grow at a faster rate than their competitors? It's very rare that you can just decide something and do it. Wouldn't Schwab and Fidelity like to be the largest? Why don't they just decide to do it if that's all it takes?
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zx14rr
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by zx14rr »

Cheez-It Guy wrote: Sat Dec 14, 2019 5:12 pm
Scooter57 wrote: Sat Dec 14, 2019 4:59 pm
Cheez-It Guy wrote: Sat Dec 14, 2019 3:24 pm I didn't realize all they had to do was decide. Don't you think this result had something to do with investor opinion at some point along the way?
I don't think so. I've been with Vanguard since 1988 and have yet to have them ask me a single question about my experience investing, my needs as an investor, or what I think would make them more helpful to their customers. They have several times told ME how they think I should be handling my assets, through reps who haven't struck me as very well-educated and once with a supposed investment advisor who didn't seem to understand the tax impact of what he was telling me to do with my current taxable allocation.

I don't know enough about these particular ETNs to know why they would decide to do this to holders, but my guess is that it has something to do with expenses on their end, not the decisions their customers make. I could buy all kinds of poorly chosen stocks on their brokerage platform if I wanted to. They don't censor what people buy. But my undestanding is that these brokerages make some kind of tiny profit on trades even when they don't charge for them.
What I meant was, don't you suppose that along Vanguard's journey to becoming the largest investment firm (by far), their products and / or services had to resonate with enough investors or institutions so as to continue to draw assets and grow at a faster rate than their competitors? It's very rare that you can just decide something and do it. Wouldn't Schwab and Fidelity like to be the largest? Why don't they just decide to do it if that's all it takes?

Per the last data that I saw, Blackrock is the biggest, not Vanguard.
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by Cheez-It Guy »

Blackrock is the largest for ETFs. Vanguard is second. Vanguard is by far the largest for mutual funds. It looks like you are correct that Blackrock may have the edge on total assets under management (AUM), although its tricky to find information for both updated through the same time period. Vanguard also appears to have the faster growth rate of late. No-commission Vanguard ETFs at competitors should further help with AUM growth.
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by not4me »

Scooter57 wrote: Sat Dec 14, 2019 4:59 pm
Cheez-It Guy wrote: Sat Dec 14, 2019 3:24 pm I didn't realize all they had to do was decide. Don't you think this result had something to do with investor opinion at some point along the way?
I don't know enough about these particular ETNs to know why they would decide to do this to holders, but my guess is that it has something to do with expenses on their end, not the decisions their customers make.
I think it might have been in 2018 that another ETN geared toward the VIX had a problem that had ripple effects. It liquidated then. The subsequent discussion around these "types" of ETNs, etc (leveraged &/or inverse) was such that Vanguard (at least, maybe others) decided to not offer on their platform. They announced they were doing so in advance (by a couple of weeks) & then basically stopped supporting them. As OP said, that was months ago.

Years ago, there was a lot of stir about frequent trading certain assets. I think you might still see mutual funds not allow for customers to come & go "often".

I'm not trying to defend Vanguard; just saying it isn't unheard of. There was criticism when the vix etn liquidated that it shouldn't have been available to folks who didn't understand it, etc. So, criticism will come either way
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zx14rr
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Re: Vanguard Forced Liquidation of Holders of UBS ETRACS Exchange Traded Notes

Post by zx14rr »

not4me wrote: Mon Dec 16, 2019 9:18 am
Scooter57 wrote: Sat Dec 14, 2019 4:59 pm
Cheez-It Guy wrote: Sat Dec 14, 2019 3:24 pm I didn't realize all they had to do was decide. Don't you think this result had something to do with investor opinion at some point along the way?
I don't know enough about these particular ETNs to know why they would decide to do this to holders, but my guess is that it has something to do with expenses on their end, not the decisions their customers make.
I think it might have been in 2018 that another ETN geared toward the VIX had a problem that had ripple effects. It liquidated then. The subsequent discussion around these "types" of ETNs, etc (leveraged &/or inverse) was such that Vanguard (at least, maybe others) decided to not offer on their platform. They announced they were doing so in advance (by a couple of weeks) & then basically stopped supporting them. As OP said, that was months ago.
When Vanguard decided to prohibit the purchase of certain ETNs, as least that was done fairly in that there was prospective treatment, i.e., clients could purchase the ETNs up to a certain date after which purchases were prohibited. In other words, the client could do nothing if they chose and still maintain the status quo. Under the current scenario, the client has to take action to open potentially multiple brokerage accounts at other firms or be liquidated. For example, since I hold the ETNs in both a traditional IRA brokerage and a Roth brokerage accounts, I would need to open multiple accounts elsewhere.

Because of the large dividend yields on these ETN products, I have in comparative short order recouped my cost basis and I am trading with the houses money so to speak. The strange thing about Vanguard's decision is that clients can continue to hold the B Series ETNs into which the A Series ETNs would be converted, if Vanguard allowed clients to participate in the UBS exchange offer. It is almost as if Vanguard is saying, don't blame us, blame UBS for the adverse impact, which does not strike me as being forthright. If the risk associated with these products is the issue in holding them, that can be dealt with in the usual manner, accredited investor criteria.
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