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Money and Markets: Investing Insights

HOLDRS Closure Marks the End of an Era

Ron Rowland | Thursday, December 22, 2011 at 7:30 am

Ron Rowland

Happy Holidays! I hope everyone has a great time with family and friends.

Before the weekend starts, there’s one last business item you may want to settle. So pay close attention if you’re an investor in any of Merrill Lynch’s HOLDRS products.

Same Ticker, Different Funds

On the surface, HOLDRS look like sector ETFs. In fact, they are an odd hybrid with some important limitations. I wrote about them back in 2010 because so many readers were confused.

Here are the four main problems I described last year:

  • HOLDRS are over-concentrated in a few stocks.
  • HOLDRS must be traded in 100-share round lots.
  • HOLDRS clog your mailbox with paperwork.
  • HOLDRS tiny dividends make accounting complicated.

(For more details, see my original column ETFs Beat HOLDRS Hands Down!)

The good news is that these problems are solved. Merrill — now owned by Bank of America (BAC) — has thrown in the towel. HOLDRS will soon be extinct — very soon, as in after tomorrow.

New owners changed the plan.
New owners changed the plan.

Unfortunately, the confusion may get worse before it gets better. Van Eck’s Market Vectors brand launched six new ETFs yesterday (12/21/11) with the same ticker symbols as the six most popular HOLDRS.

Moreover, Van Eck and Merrill Lynch struck a deal that let investors in these six HOLDRS exchange their shares for shares in these new and similar (but not identical) Market Vectors ETFs.

The other HOLDRS? They’re just going away — starting tomorrow, December 23. But they’ll linger on in a zombie-like state for another year. Likewise for those in the first category that didn’t meet the December 20 deadline for tendering HOLDRS to Van Eck in exchange for shares in the new Market Vectors ETFs.

Confused Yet?

If you took my advice last year, none of this matters to you because you don’t own any HOLDRS. We have many new readers, though, so I want to review what’s happening.

For clarity, let’s divide all the HOLDRS into two groups. Group 1 consists of the following:

  • Biotech HOLDRS (BBH)
  • Oil Service HOLDRS (OIH)
  • Pharmaceutical HOLDRS (PPH)
  • Regional Bank HOLDRS (RKH)
  • Semiconductor HOLDRS (SMH)
  • Retail HOLDRS (RTH)

If you own any of these, Van Eck offered to let you exchange them for shares in these new ETFs:

  • Market Vectors Biotech ETF (BBH)
  • Market Vectors Oil Service ETF (OIH)
  • Market Vectors Pharmaceutical ETF (PPH)
  • Market Vectors Bank and Brokerage ETF (RKH)
  • Market Vectors Semiconductor ETF (SMH)
  • Market Vectors Retail ETF (RTH)

Same tickers, different funds.
Same tickers, different funds.

However, the exchange offer ended on December 20. If you took advantage of it, you now own shares of a different product with the same symbol.

If you didn’t take Van Eck’s offer, you still own HOLDRS. Your shares have not disappeared. They are being held in trust by the Bank of New York. However, your options are now limited, and the lack of ticker symbols makes selling them very difficult.

Now, let’s look at HOLDRS Group 2, which includes:

  • B2B Internet HOLDRS (BHH)
  • Broadband HOLDRS (BDH)
  • Europe 2001 HOLDRS (EKH)
  • Internet HOLDRS (HHH)
  • Internet Architecture HOLDRS (IAH)
  • Internet Infrastructure HOLDRS (IIH)
  • Market 2000+ HOLDRS (MKH)
  • Software HOLDRS (SWH)
  • Telecom HOLDRS (TTH)
  • Wireless HOLDRS (WMH)
  • Utilities HOLDRS (UTH)

All the Group 2 HOLDRS will be delisted after the close on December 23. But even more importantly, Van Eck has NOT offered to exchange your Group 2 shares, and Merrill Lynch no longer wants to be bothered with you.

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If you own any of these, your best bet is probably to sell them today or tomorrow. Otherwise, you’ll be in the same boat with Group 1 shareholders who declined the Van Eck exchange offer (you can get some additional details at www.VanEck.com/holdrs).

In one way, I’m a little sad to see the HOLDRS go away. Why? It’s the end of an era. The first HOLDRS arrived in September 1999, becoming just the 31st of what now numbers nearly 1,400 listed ETFs. Despite all the drawbacks, they were a big step toward the development of today’s ETF menu. For that, we should all be grateful.

Best wishes,

Ron

P.S. In my International ETF Trader, my team and I provide members with comprehensive research behind every ETF trade, along with unbiased information on the markets and major trend changes. To learn how to join, RISK FREE, click here.

Ron Rowland is widely regarded as a leading ETF and mutual fund advisor. You may have read about Mr. Rowland and his strategies in publications such as The Wall Street Journal, The New York Times, Investor's Business Daily, Forbes.com, Barron's, Hulbert Financial Digest and many more. As a former mutual fund manager from 2000 to 2002, Ron was a pioneer in using ETFs inside of mutual funds. Today, he is the editor of International ETF Trader, dedicated to helping investors use ETFs to profit from ever-changing global market conditions.

{ 6 comments }

Kenny Thursday, December 22, 2011 at 9:24 am

Sir,

I live in houston, texas. I was ex-texas school for the deaf and blind in austin 1963-1972. Plwase tell me one which best buy ETF name ? Thank for info

Kenny

Ron Rowland Friday, December 23, 2011 at 1:03 pm

Kenny,
The “best buy ETF” is going to be different for various investors based on their circumstances, objectives, and the day they are buying.

bestseo Friday, March 16, 2012 at 1:39 pm

great info, and definitely beneficial advice… but, there are plenty of people who are out there searching for a good source for information on mining, gold, and precious metal stocks… the best source that i’ve personally found states that it’s free stock alerts, “scour the Mining and Precious Metal universe to find stocks that are on the verge of breaking out or that are undervalued”… check them out at http://www.MiningStockAlerts.com if you happen to be one of those people out there searching for truly profit-gaining results in the mining stock field. :)

Jackie Thursday, July 19, 2012 at 3:36 pm

There used to be a cost basis calculator on the HOLDRS website but it’s been taken down. Do you happen to know if there’s another?

Larry Monday, December 10, 2012 at 4:55 pm

I, too, need that cost basis calculator for HOLDRS since I opted for distribution of components from TTH and WMH. Is there a site that shows weighting of individual shares in these?
Thanks

Michael Friday, December 7, 2012 at 3:25 pm

You mentioned IAH being in group 2. There has been no way to receive any informatiom concerning the current value, when there will be a distribution or any other information. I would appreciate any information you could provide. Thank you.

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