Investors who bought some of the earliest exchange-traded funds -- a series called HOLDRs, offered a decade ago by Merrill Lynch -- were on the early end of what would turn out to be a boom for the fund industry. Those who held onto them have also learned some of the hard lessons of being early adopters, and many will now literally pay a price for hanging in.
Merrill announced recently that six of its funds will be taken over by Van Eck Global and converted into exchange-traded funds. The other funds will be liquidated in the coming months, and investors who wait until the liquidation will be charged a $10 fee per 100 HOLDRs shares. Fees on such closings can be charged to investors or assumed by the manager. Merrill Lynch, Van Eck Global and HOLDRs trustee BNY Mellon declined to comment on the transaction.
In the early days, the HOLDRs were unique -- and sometimes mocked -- for their structure. Set up as passive trusts, they were unable to make any changes to the stocks they held. As companies within the portfolios were acquired or taken private, the portfolios shrank; the B2B Internet HOLDRs today holds just two stocks.
For those who hold these highly, highly concentrated funds, the Van Eck Global acquisition could be a blessing. The company is transforming six of the 17 HOLDRs, including the $2.1 billion Oil Services HOLDRs (OIH)
As for the other 11, they will be wound down in the coming weeks and the underlying shares will be distributed to shareholders. Only $400 million in assets is held by the collective portfolios liquidated, compared to $3.6 billion held by the six being transferred. Still, the HOLDRs owners who stick it out may be surprised at what they get.
Here are some of the more interesting details:
Broadband HOLDRs (BDH)
B2B Internet HOLDRs (BHH)
Congratulations, you get 92 parts Ariba and 8 parts ICG Group, known previously as Internet Capital Group which once traded for over $3600, split-adjusted.
Internet HOLDRs (HHH)
Not surprisingly, mostly Amazon, eBay, Yahoo and Priceline -- the core of the dotcom survivors, with a speck of new AOL.
Internet Architecture HOLDRs (IAH)
Built when Apple was still climbing back and Cisco was king of the Internet, this HOLDRs is 39% IBM, 27% Apple and 13% Hewlett-Packard. Cisco (CSCO),
Internet Infrastructure HOLDRs (IIH)
Get ready for your Verisign and Akamai distributions!
Market 2000+ HOLDRs (MKH)
Originally consisting of 50 of the world's largest companies trading on U.S. exchanges in summer 2000, the initial make-up of this portfolio included bankrupt Nortel and WorldCom.
Utilities HOLDRs (UTH)
The surviving brethren of Enron include Exelon, Southern and Dominion Resources.
Wireless HOLDRs (WMH)
Crown Castle, which operates network antennae, is 40% of the portfolio.