Industry Updates

WisdomTree shuts triple short ETP as European banks soar

3BAS returned -92.9% over the 12 months to 22 April

Jamie Gordon

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WisdomTree has been forced to close its European banks triple short ETP after a bumper recovery by finance equities saw the product’s performance nosedive. 

Despite being on a stronger footing after the initial pandemic volatility a year ago, the WisdomTree EURO STOXX Banks 3x Daily Short (3BAS) has returned -45.9% so far this year and -92.9% over the trailing 12 months, as at 22 April. 

Since Pfizer published its vaccine results last November, the market has undergone a broad rotation back to cyclical and value stocks, and with this came the rebound of European banks.

Amid lower-than-anticipated loan default rates and strong performance by its revamped investment banking arm, Deutsche Bank reported its best quarterly performance in seven years during the start of 2021.

Likewise, Santander has enjoyed record quarterly revenues from its US franchise, while BNP Paribas saw financing raised for clients through capital markets activity rise 21%, year-on-year.

While this was a boon for 3BAS’s sister product, the WisdomTree EURO STOXX Banks 3x Daily Leveraged (3BAL), which has returned 66.4% year-to-date, feverish optimism by European banks has wiped out shorts. 

Structured debt instruments such as WisdomTree’s 3BAS ETP are required to keep their net asset value – or price – a predetermined amount above their principal amount – or borrowing. 

With European banks’ strong performance over the last six months, 3BAS has seen its price forced down rapidly.  

In November last year, this triggered what is called a ‘threshold event’ whereby the ETP’s price fell below 500% of the principal amount. At this point, it entered a 60-day monitoring period. 

Then, in March 2021 the product tiggered a ‘threshold redemption event’. This occurred as 3BAS’s NAV fell below 200% of the principal amount, which means the product had to be redeemed and closed by default. 

A WisdomTree spokesperson told ETF Stream: “The ETP has experienced a significant fall in its ‘NAV’ which triggered a compulsory closure process.  

“Payments were made to registered security holders on 30 April.”

This is not the first time WisdomTree has been forced to close ETPs. Last May, the ETF issuershut eight oil ETPsand one carbon ETP after its swap counterparty,Shell Trading Switzerland, terminated the purchase agreement following historic volatility in oil prices.

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