UBS Exchange Traded Access Securities (ETRACS): What Investors Need to Know

Have you invested any of your hard-earned money into UBS Exchange Traded Access Securities (ETRACS)? If so, you need to have a full understanding of this highly complex investment product. Here, our investors’ rights lawyers explain how an investment in UBS ETRACS works, as well as why this high-risk financial product is unsuitable for most investors.

What are UBS ETRACS ETNs?

UBS is a Swiss-based financial services giant. The company offers a wide variety of different, often highly complex investment products to investors in the United States and around the world. One of these products is ETRACs. According to UBS, ETRACS are Exchange Traded Notes (ETNs) that are unsecured senior debt securities, designed to track a specific market.

Of course, that description is itself a complex and highly technical definition, and it is worth explaining in more depth to ensure that investors truly understand this product. More specifically, investors should understand how exchange traded notes (ETNs) work.

Essentially, an ETN is a debt note that is issued by a bank. ETNs are linked to a specific underlying asset. The price of that asset will then determine that value of the note at any given time. As with any debt product, there is always a risk that investors will not be repaid.

UBS ETRACS Products

UBS offers a wide variety of different ETRACS ETNs that are available to investors. These ETNs are linked to many different underlying markets. For example, you may be invested in an ETN that is linked to a certain commodities market, such as crude oil or agricultural products. Alternatively, you may be invested in a UBS ETRACS ETN that is linked to a real estate investment trust (REIT) or Dow Jones equities.

UBS ETRACS and the Risks for Investors

UBS ETRACS ETNs are notoriously risky investment products. Indeed, for many different reasons, these investments not suitable for ordinary investors. Here, we highlight four reasons why you may want to avoid investing in UBS ETRACS ETNs.

1. Leveraged Investments

First and foremost, many, but not all, UBS ETRACS ETNs are 2x leveraged. In simple terms, this means that the product in question is structured in a manner that is designed to deliver twice the impact of movement in the underlying index to its investors. Put another way, this means that any gains or losses that a 2x leveraged ETN sustains will be doubled for the investors.

2. Highly Volatile Prices

Beyond being leveraged, ETNs are also often linked to inherently risky markets. For example, a substantial portion of UBS ETRACS ETNs have high exposure to commodities markets or currencies. These types of assets, by their very nature, are unstable. They are subject to wild price swings, and most investors should avoid that type of volatility.

3. High Fees

For what they offer investors, UBS ETRACS ETNs are high-fee products. While high fees are great for the big financial services companies that are offering a product, fees can destroy the value of an investor’s account over the long run. Due to the high-fee nature of these ETRACS, many investors are better off going in a different direction.

4. No Principal Protection

Finally, UBS ETRACS products offer no principal protection for investors. Should the market turn against you, your entire principal could be lost. To be clear, this means that it is possible for someone to lose literally every penny they put into an ETRACS ETN.

Were You Misled About the Nature of this Investment Product?

There have been many reports that UBS representatives along with other related brokers have been misrepresenting the nature of ETRACS ETNs to actual and prospective investors. These products are often touted as a low-risk, safe way to increase yield, thereby creating a reliable stream of income.

In far too many cases, the high risks of these products have been swept under the rug by financial advisors. Many investors may not be aware of how volatile these products are. They just do not understand what they are putting their money in.

Additionally, in some cases, brokers have pushed investors into these products without giving proper considerations to portfolio diversification.

Contact Our Securities Fraud Attorneys Today

If you have lost a substantial amount of money investing in UBS ETRACS ETNs, you may have a viable legal claim. At Sonn Law Group, we have helped protect the legal rights and financial interests of countless investors. To request a free case evaluation, please call us today at 844-689-5754. Our main office is located in South Florida and we serve investors throughout the United States and Puerto Rico.