What Trading Halt? Guggenheim Solar ETF Dumps Hanergy in OTC Sale

June 30:

Guggenheim Investments has sold its entire stake in troubled Hanergy Thin Film Power Group (566.Hong Kong), the fast-growing stock that’s remained frozen from trading since the company lost $19 billion in market capitalization on a single day last month.

IMAGINECHINA/CORBIS

Beijing-based Hanergy Holding Group Ltd. makes solar panels in Huzhou, China.

The sale means that owners of the Guggenheim Solar exchange-traded fund (TAN) appear to be finished with a six-week ordeal that’s raised questions about the risks posed by niche ETFs. Two other Guggenheim ETFs that recently held smaller chunks of Hanergy, the Guggenheim China All-Cap ETF (YAO) and Guggenheim China Technology ETF (CQQQ), no longer own the stock either.

Guggenheim was able to sell its shares of Hanergy, which remain halted, via an over-the-counter transaction, a spokesman for Guggenheim confirmed. For the Guggenheim Solar ETF alone, that sale would have been worth about $20 million, based on this blogger’s estimate.

See for yourself in the ETFs holdings, which are disclosed daily: no more Hanergy. As recently as April, Hanergy was the Guggenheim Solar ETF’s top holding, representing about 12% of the portfolio. A Guggenheim’s spokesman explained the motivation behind the transaction to Barron’s, but declined to give additional details:

“We felt it was better to find a price now than try to seek liquidity later, and run the risk of it going all the way to zero.”

Hanergy’s blistering price gains — shares jumped nearly seven-fold over the span of a year — vaulted the company from near obscurity to become the largest solar company in the world by market value. Hanergy’s price gains alone were responsible for half of the solar ETF’s 40% year-to-date gain through early May, according to research firm Markit.

Then, as inexplicably as it rose, Hanergy tumbled 47% in less than an hour on May 20, and trading in the stock was halted. American investors awoke to find the Guggenheim ETF under heavy pressure: It ended the day down 7.8%, the biggest one-day slide since August 2013

The index provider, MAC Global Solar Energy, had originally said it would boot Hanergy on that day that trading resumed. That day hasn’t arrived yet. Guggenheim’s spokesman explains:

“Once the underlying index providers decided that it was in the indexes’ best interest to drop Hanergy, Guggenheim did everything it could to seek liquidity for those shares in the best interest of our ETF shareholders.”

Guggenheim’s Solar ETF is down about 18% since its May high. Why not?  It’s tough to get excited about buying an ETF that is likely to face a stiff decline once Hanergy’s shares resume trading. For now, it appears that Guggenheim found a way for the ETF to dodge a second hay-maker. It even looks like the recent exit means the index-fund ETF was able to benefit from the gains and sell without catastrophic declines.

Source: http://blogs.barrons.com/focusonfunds/2015/06/30/what-trading-halt-guggenheim-solar-etf-dumps-hanergy-in-otc-sale/?mod=BOLBlog

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