Nuveen, Merrill's eye $500 million of Elements sold; Citigroup prices $205 million Apple reverse converts

By Kenneth Lim

Boston, Feb. 27 - Nuveen Investments and Merrill Lynch continued their recent push for their Elements exchange-traded notes, adding another $5 million of the product to the marketplace and bringing the total Elements near to the $500 million mark.

AB Svensk Exportkredit said it sold another $5 million of Elements linked to the Rogers International Commodity Index - Energy Total Return due Oct. 24, 2022. The Elements are sold through Merrill Lynch and Nuveen.

"There are two major distributors for the Element," said Nuveen structured products consulting group managing director Michael Forstl. "Merrill Lynch distributes it internally, and Nuveen is the sole distributor outside of Merrill. It's been hugely popular, and the entire suite of products, hopefully this week we'll go by $500 million."

The Elements platform was launched at the end of summer 2007. Since then, numerous products using the architecture have been launched, mostly by Svensk and Deutsche Bank. Deutsche Bank recently announced a slew of Elements products linked to currencies.

"We were looking at the exchange-traded industry and what's been happening there, and we looked at the traditional structured product industry and we asked how to marry the two," Forstl said. "The genesis of the Elements really came from those thoughts, how to marry those two industries and also how to bring out the best of those industries in an open platform."

The Elements stand out from other exchange-traded notes and structured products because they are continuously offered and have an open architecture, Forstl said.

"There's a few reasons that I think we're having success," Forstl said. "One: The appeal of the product structure, which gives advisors and clients access to traditionally hard-to-access markets and strategies in a very cost effective and time efficient way. In addition, at Nuveen our distribution breadth and reach into the advisor community, and in part into those advisors that practice on a fee-based platform, is very extensive."

Benefits of open architecture

The open architecture allows the products to be offered by the "best in class," Forstl explained.

"We are able to look at the marketplace and get the best issuers, the best indices," he said. "It really creates a more efficient and attractive product, and that coupled with Nuveen as a third-party distributor, we are getting access to firms that would traditionally not sell such products. Nuveen's distribution is really unparalleled in the third-party environment."

Fee-based investment advisors have been some of the biggest fans, Forstl said.

"The target audience we're going after are the more sophisticated advisors who are building a portfolio for their clients," he said, explaining that the upfront fees for typical structured products that are offered through initial public offerings are not so popular with fee-based advisors. "That's where the broadest appeal of the ETNs lie."

So far, the Elements have been linked to a number of equity indexes maintained by Morningstar, BNP Paribas and the Dogs of the Dow index. The notes have also been linked to currencies and commodity indexes. The Rogers commodity indexes have been the most popular, Forstl said.

"The acceptance of the ETNs into the marketplace is very encouraging," he said. "The investors we're targeting are those fee-based advisors, those who are the true practitioners of the modern portfolio theory. They are attracted to the ability of ETNs to offer access to markets and strategies that have low or relatively low correlation to traditional asset classes, so we're looking at commodities, currencies, and other asset classes."

Citigroup prices Apple-linked ELKS

Elsewhere in structured products, Citigroup Funding Inc. said it priced $204.61 million of its 13.5% Equity LinKed Securities (ELKS) due March 6, 2009 linked to the common stock of Apple Inc.

The notes will pay par at maturity unless Apple stock falls by 35% or more during the life of the notes, in which case the payout will the number of Apple shares equal to par divided by the initial share price or the equivalent cash value.

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