One of the stranger ideas after the bankruptcy of Lehman Brothers was that ETFs with a Lehman Brothers bond index in their name would stop trading. More to the point, that investors would lose their money like the holders of the Lehman exchange-traded notes (ETNs).
Let’s just say right now, for everyone worried about what would happen to the ETFs based on Lehman indices, have no fear. It’s not true. The concept is silly once you understand the ETF structure. Most ETFs track an index. The classic ETF name is the sponsor of the ETF followed by the name of the index that the fund tracks. For instance, the SPDR Lehman 1-3 Month T-Bill ETF (BIL) is run by State Street Global Advisors’ (SSGA) SPDR division and tracks the Lehman Brothers 1-3 Month U.S. Treasury Bill Index. The Lehman ETNs, however, were a debt product out of Lehman Brothers. Those funds have disappeared.
While indices need to be updated and maintained, for the most part, once they are created they live lives separate from their creators. Sorta like children after college. Still, quite a few investors unclear about this were confused that the ETFs with Lehman indices in their name not only didn’t go to $0 but some actually continued to perform well.
Of course, it can’t be good for business for even a stable fund to include the name of a bankrupt investment bank, especially one with undertones of scandal during the largest financial crisis since the Great Depression. Well, that problem has been solved. Barclays Capital, which purchased Lehman’s index department after the investment bank went under, on Monday united the Lehman platform and its own index department. It rebranded them with the name Barclays Capital Indices. Barclays Capital said it’s committed to continuing the calculation, maintenance, infrastructure and publication of the existing indices in both families. Barclays Capital is the investment banking division of Barclays Bank and runs the iPath family of ETNs. It’s also the sister company of Barclays Global Investors, which runs the iShares family of ETFs.
However, this presents a new problem.
What’s worse? Having the moniker of a bankrupt scandal-scarred investment bank in the name of your fund, or having your competitor’s name? Brutal! The three ETF companies tracking Lehman bond indices are iShares, SPDR and Van Eck Global’s Market Vectors. For iShares it’s no problem. It fact, it’s a win-win. In case you didn’t know Barclays owned iShares, let’s remind you with the index name. However, they can’t be happy at SSGA or Van Eck.
Whether Van Eck was uncomfortable with the Lehman connection or anticipated Barclays move, late last month it changed the names of its fixed-income ETFs.
The Market Vectors-Lehman Brothers AMTFRee Long Municipal Index ETF changed its name to Market Vectors-Long Municipal Index ETF (MLN).
The Market Vectors-Lehman Brothers AMTFRee Intermediate Municipal Index ETF changed its name to Market Vectors-Intermediate Municipal Index ETF (ITM).
And the Market Vectors-Lehman Brothers AMTFRee Short Municipal Index ETF changed its name to Market Vectors-Short Municipal Index ETF (SMB).
That’s pretty straightforward and solves the problem easily. The ETFs will continue to track the same Lehman indexes, which will be rebranded.
But what about SSGA? It has 10 fixed income ETFs with Lehman in the name of the fund. Will the ETFs now have Barclays in their name? This issue was brought up at the Journal of Indexes editorial board meeting last week, which was attended by both Lee Kranefuss, the head of iShares, and Jim Ross, the of SSGA. Ross hinted that these were good indexes and SPDR wouldn’t necessarily change the name, but I think he was just deflecting an uneasy question. I would expect some changes.