If an MLP is expected to be removed from the AMZ, how many units of that MLP will need to be sold during the rebalancing process? Will you send me this information?
On a beautiful fall day, you rarely hear anyone discussing plans to buy a generator. It’s just not one of those things that people see the need for until they get word that a storm is coming. Companies see a surge in generator sales once meteorologists have confirmed a weather event is on its way. Similarly, once the Alerian rebalancing press releases (you can sign up to receive rebalancing updates here) cross the wire, we receive a surge in phone calls and emails.
One of our most frequently asked questions is if we can provide the specific number of units of a certain stock that will need to be sold for all products linked to an Alerian index. Last week, all of our questions were about Hi-Crush Partners (HCLP), Linn Energy (LINE), and Memorial Production Partners (MEMP) since they were to be removed from the AMZ. Not only are we in a quiet period for the two weeks leading up to every quarterly rebalancing, but per company policy, this is not information we will provide to non-licensees.
However, because we love you, even if you only call us when you want something, instead of giving you a fish for a day, we’re going to teach you how to fish (and find a rough estimate of the number you’re looking for).
The first step is to figure out that MLP’s weight in the AMZ.
- Visit alerian.com.
- On the blue bar at the top of the page, click “Indices”.
- Once on the Indices page, click the dark blue AMZ circle.
- Once on the AMZ page, click the 3rd button from the left under the chart labeled “Constituents Download”. This should download an Excel workbook onto your machine called Alerian MLP Index Constituents.
- In the Excel workbook, update all the prices in Column D to the most recent prices.
- Updating the prices will change the Weight percentages in Column J. Note the updated weight of the name in which you are interested.
The second step is to figure out which products are designed to track the AMZ.
- Visit our Linked Products Page, found by clicking “Products” in the blue bar at the top of our website. In the far right hand column labeled Index, you’ll find the underlying index for each product. Since we’re focusing on the AMZ in this exercise, you’ll see that there are two products that track the AMZ: the ETRACS Alerian MLP Index ETN (AMU) and the JP Morgan Alerian MLP Index ETN (AMJ). The tickers and product names are found in the two left-hand columns.
The third step is to figure out the total AUM of these products. Let’s start with AMJ.
- Click on “AMJ”. This will take you to JP Morgan’s webpage for the AMJ.
- In the top right hand corner, in the box labeled “Related Documents”, click the “Daily Report”. This should download the JP Morgan ETN Report onto your computer.
- Using the information in the report, subtract the “Number of Notes held by JPMorgan” column from the “Number of Notes” column and multiply by the “Closing Price ($)” column. We’ll call this number “x”
(Number of Notes – Number of Notes held by JPMorgan) * Closing Price ($) = x
Now we’ll do AMU.
- Go back to Alerian’s Products Page and click on “AMU”, this will take you to the UBS ETRACS webpage where you’ll need to click AMU once more.
- Once on the page labeled “ETRACS Alerian MLP Index ETN”, click on “Performance.”
- Look at the number next to “Market Cap”. We’ll call this number “y”.
- Add x and y, then multiply by the weight of the name in which you are interested. This will give you the dollar amount of the name to be removed.
(x + y) * weight of the name in which you are interested = dollar amount of the name to be removed
- Divide the dollar amount of the name to be removed by the price of the name in which you are interested. This will give you the number of units that will need to be sold in order to reflect the removal.
With this cheat sheet, you now have the equivalent of a backup generator. Next week, we’ll discuss how to calculate the number of units that would need to be sold in order to reflect the removal of a name from the Alerian MLP Infrastructure Index (AMZI).