Eksportfinans launches first independent ETN through AAM; more WealthNotes planned, consultant says

By Kenneth Lim

Boston, July 23 - A new series of exchange-traded notes from Eksportfinans ASA through Advisors Asset Management, Inc. will be the first independent ETN program.

"It's the first of many firsts," consultant Keith Styrcula told Prospect News. "It's the first independent ETN program in the business. Most notes obviously are sponsored by investment banks...We're delighted to be part of the ETN community. We believe it's a big universe, a big pie, and we're going to be taking assets away from traditional mutual funds and ETFs [exchange traded funds]."

Eksportfinans plans ETNs

Eksportfinans plans to price up to $1 billion of 0% WealthNotes ETNs due 2023 linked to the S&P 500 130/30 Total Return Strategy index via Advisors Asset Management, Inc.

The index was developed to follow an investment strategy in which the portfolio commits 30% of its capital to offsetting allocations in short and leveraged long positions. It is rebalanced quarterly and is made up of a core 100% long position in the S&P 500 index, 1% underweight positions in 30 S&P 500 constituent stocks and 1% overweight positions in 30 S&P 500 constituent stocks.

The face amount of each note will be $40, and the initial issue is expected to price at 100.39.

Additional issues will price from time to time.

The payout at maturity will be par plus the index return minus the investor fee. The investor fee will initially equal zero. On each day, the fee will increase by an amount equal to the fee percentage plus the index return on that day divided by 365. The fee percentage will initially be 0.95% per year. After March 1, 2009, it may be increased to a maximum of 1.39% per year.

The notes will be putable on Friday of each week, subject to a minimum of $5 million of securities. Investors will receive par plus the index return minus the investor fee and minus the early redemption fee, which equals 0.125% of par multiplied by quotient of the final index level divided by the initial index level.

The notes will be listed on the New York Stock Exchange under the symbol "WNF."

Notes offer access to popular strategy

The notes aim to provide access to a popular long-short strategy, Styrcula said.

"Basically the investor gets exposure to a new index," he said.

"The 130/30 index has been very hot among institutional investors. We see this note as a way for retail investors to access the 130/30 strategy, where otherwise it would be difficult for them to access it. And if major institutions are interested in getting into the 130/30 strategy, and they have to do due diligence on hedge funds and so on, this is a terrific proxy until which time they can invest through a fund. And once you've deducted the fees and costs associated with hedge funds, this is an inexpensive way to invest in the strategy."

PowerShares model for ETNs

The WealthNotes platform borrows from the PowerShares model in the exchange traded funds sphere, Styrcula said.

"Our business model is similar to that of PowerShares in the ETF world, where we think it all comes down to the types of products and investments you're offering to investors," he said.

"We have a pipeline of indexes that I think will make us formidable players in the ETN space, just like PowerShares carved out a spot for itself as a third player. We very much admire [PowerShares founder] Bruce Bond and what he's accomplished in the ETFs world."

In the notes offered by Eksportfinans, AIG Financial Products is providing the hedge, while Citigroup is the paying agent and Standard & Poors is the index provider. Allen & Overy was the counsel on the product, which had been in the works since October 2007, Styrcula said.

"We have something like seven different players that have coordinated on those," he said.

More WealthNotes to come

Styrcula said the aim is to push out six to eight ETNs on the WealthNotes platform per year. If demand exists, the target could be pushed to 10 to 12.

"We can't give many details about that yet, but we have several ETNs in the pipeline," he said. "Probably right now we have at least a half-dozen on the drawing board."

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