ETN Launch: Barclays Women in Leadership

The new ETN will trade on the NYSE Arca Exchange under the stock ticker WIL, starting on Thursday, July 10, 2014.

The ETN will track the Barclays Women in Leadership Total Return Index, offering investors with exposure to U.S. companies with gender-diverse executive leadership and governance. The index also has market capitalization and trading volume thresholds. As noted:

To be included in the Index, a company must, among other things, have a female CEO and/or at least 25% female members on the board of directors.

What seems a bit faulty here is that this is being launched as ETN rather than as an ETF. ETFs are backed by stocks and direct holdings, while ETNs are merely credit instruments that move their would-be investors in line with other creditors if there is a problem down the road. Barclays said:

The ETNs are also subject to certain investor fees, which will have a negative effect on the value of the ETNs. The ETNs are speculative and may exhibit high volatility. Owning the ETNs is not the same as owning interests in the companies included in the Index.

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In terms of how this ETN was designed, Johnny Wu, Head of EFS Sales, Americas, was quoted as saying:

As with all of our investable index products, Barclays will make the Women in Leadership index available via several investable formats, including total return swaps and structured notes as well as the ETNs. We are excited by the prospect of being able to further the conversation on the need for leading companies to have more diverse leadership representation.

Barclays also signals that these ETNs are senior, unsecured, unsubordinated debt securities issued by Barclays Bank PLC. Barclays Bank PLC is the issuer of Barclays ETNs and Barclays Capital Inc. is the issuer’s agent. In short, if Barclays runs into trouble down the road, the investors in this ETN could face being in line with other creditors trying to get their money back. This was a problem among some of the Lehman and Bear Stearns ETN products, which were not ETFs, in the most recent recession. From the initial press release:

Credit of Barclays Bank PLC: The ETNs are senior unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the ETNs depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due and are not guaranteed by a third party. As a result, the actual and perceived creditworthiness of Barclays Bank PLC may affect the market value of the ETNs and, in the event Barclays Bank PLC were to default on its obligations, you may not receive the amounts owed to you under the terms of the ETNs.

Barclays was very smart to undergo this sort of effort. It just doesn’t make any sense to us why they would have launched as an ETN rather than as an ETF. If these are all listed companies with strict criteria on size and volume, the index could have just as easily been represented by selling it as an ETF that actually buys and sells real shares that would ultimately be owned by the investors if there was a problem.

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