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Faqs

What are short and leveraged daily ETPs?
The ETPs are designed to give investors leveraged exposure to the daily price moves of a single stock or basket of stocks, both up and down, of companies listed on the London Stock Exchange, on the NYSE and other major exchanges.
The ETPs use leverage to deliver a multiple of the daily underlying share price move, i.e. 3 times. This is referred to as a the “Leverage Factor”.
How does the leverage factor work on short and leveraged Daily ETPs?
Taking the example of the GraniteShares 3x Long Vodafone Daily ETP, if Vodafone Group Plc rises by 1% over a day, then the ETP will rise by 3%, excluding fees and other adjustments. However, if Vodafone Group Plc falls by 1% over a day, then the ETP will fall by 3%, excluding fees and other adjustments. 
This is illustrated in the table with below, which also shows the price performance of GraniteShares 3x Short Vodafone Daily ETP excluding fees and other adjustments

 

 

Scenario Underlying stock: Vodafone 3x Long Vodafone Daily ETP 3x Short Vodafone Daily ETP

Rising market

+1%

+3%

-3%

Falling market

-1%

-3%

+3%

Who might use short and leveraged Daily ETPs?

The typical user profile is a sophisticated investor, who understands leverage and how daily rebalancing leads to compound returns.

What is the purpose of daily rebalancing for the short and leveraged Daily ETPs?
The products’ objective is to replicate the daily performance of an underlying stock multiplied by a leverage factor. To achieve that objective the products’ “notional market exposure” is rebalanced at the end of each day to match the product value multiplied by the leverage factor.
For instance, if a 3x long daily ETP is worth £100 at the end of a day, its notional market exposure will be adjusted (or rebalanced) to £300.
The process is carried out each day as illustrated in the table below, excluding fees and other adjustments.

 

 

Index Leverage Factor = 3x   Day 1 - Start Day 2 Day 3

Underlying stock

Change in the underlying stock

 

3.0%

-3.0%

3x long daily ETP

Daily change in the underlying index

ETP price

ETP daily profit/loss

£100.00

9.0%

£109.00

£9.00

 

-9.0%

£99.19

-£9.81

 

Notional market exposure

Notional market exposure before rebalancing1

 

Notional market exposure Notional market exposure after rebalancing2

 

Rebalancing adjustment 3

£300.00

£309.00

 

£327.00

 

£18.00

£317.19

 

£297.57

 

-£19.62

This daily rebalancing leads to compound returns.

What is the impact of compounding for Short and leveraged Daily ETPs?
For any holding period longer than one day compounded returns will diverge from the daily leverage factor.  Taking the example of a 3x long exposure, we look how this might play out under different market conditions:
Trending markets: simulated performance, excluding fees and other adjustments
Market conditions Underlying stock 3x leverage no compounding 3x long daily ETP Performance deviation
Trending up        
Day 1 +3.0% +9.0% +9.0%  
Day 2 +3.0% +9.0% +9.0%  
Return over 2 days +6.1% +18.3% +18.8% +0.5%
Trending down        
Day 1 -3.0% -9.0% -9.0%  
Day 2 -3.0% -9.0% -9.0%  
Return over 2 days -5.9% -17.7% -17.2% +0.5%

 

 

Volatile and directionless markets: simulated performance, excluding fees and other adjustments

Market conditions Underlying stock 3x leverage no compounding 3x long daily ETP Performance deviation
Volatile        
Day 1 +4.0% +12.0% +12.0%  
Day 2 -2.0% -6.0% -6.0%  
Return over 2 days +1.9% +5.8% +5.3% -0.5%
Trending down        
Day 1 +1.0% +3.0% +3.0%  
Day 2 -1.0% -3.0% -3.0%  
Return over 2 days -0.01% -0.03% -0.1% -0.06%

 

 

Under volatile conditions, the performance deviation will be exacerbated by an increase in the volatility of the underlying stock.
Note. These charts are for illustration purposes to show the potential impact of daily rebalancing on returns for holding periods of longer than a single trading day.  Further details about compounding and its effects are available in the Prospectus relating to ETPs.
How are dividends treated?
Dividends paid by the underlying stocks are directly reinvested in the strategy subject to any applicable withholding tax.
As a result, the value of collateralised ETPs will not be affected when the underlying stock goes ex-dividend (subject to any adjustment for tax).
How does the intraday stop loss mechanism work on short and leveraged daily ETPs?
The stop loss mechanism is designed to restrict the loss in value of an ETP during periods of adverse and extreme market movements. For example, if a 3x Long Daily ETP or 3x Short Daily ETP fell by 50% intraday as a result of a move in the underlying index, the stop loss would be triggered and the index level would be reset at a new base level.
The stop loss would thus serve to preserve investor capital and reduce the chances of the value of the ETP falling to zero intraday. To put this in context, for an 3x long daily ETP without a built-in stop loss, an intraday move of greater than 33.3% in the underlying would result in the ETP becoming worthless.
How can investors trade collateralised ETPs?

Investors can trade collateralised ETPs through online investment platforms and apps, advisory stockbrokers and wealth managers, in short, any investment service offering access to instruments listed on the stock exchange.

Are Collateralised ETPs SIPP and ISA eligible?

The Collateralised ETPs are SIPP and ISA eligible (UK only).

Do investors need to fill out a W8-BEN to trade Collateralised ETPs on US-listed companies?

No, there is no need to fill out a W8-BEN in the same way that it is not necessary to fill out one to trade a European-listed ETF or ETP on a US index.

What are the cost associated with Collateralised ETPs?
Product costs are detailed on the relevant product fact sheets and KIDs available on each product page.
In addition, trading commissions will generally be charged for purchases and sales of the ETPs.
Is the capital at risk and can investors lose more than their initial investment when using Collateralised ETPs?

Yes, capital is at risk, but in contrast to some other types of leveraged instrument, investors cannot lose more than their initial investment.

What are some of the benefits and features of short and leveraged collateralised daily ETPs?

Benefits include:

  • Ability to leverage long and short exposures on popular quoted shares
  • Listed on exchange with competitive, independent pricing
  • Backed with collateral held with BNY Mellon
  • Transparent, track indices calculated by independent third parties, such as Solactive AG.
  • Cost-effective
  • No margin calls and losses cannot exceed amount invested
  • Intraday stop loss mechanism
How might an investor use the collateralised daily ETPs?
There are a number of possible ways that an investor could use the ETPs ranging from short-term tactical applications through to strategic, longer-term implementation.

Volatility:  active traders can capture and magnify intra-day moves.

Swing-trading:  typically a short-term strategy, two to five days, where investors take positions in relation to an identified technical range.

Hedging:  for investors who wish to hedge risk on a stock position or a basket of stocks, which they hold directly or through a third-party fund or index-tracking ETF.

Event driven:  in a takeover situation, for example, an investor may go long the company being acquired and go short the acquiror.

Relative value:  situations where an investor simultaneously runs a long and short position, which could be long a stock versus another stock or an index, or vice versa.

Portfolio tilts:  an investor may look to overweight or underweight individual stock exposure to take advantage of the fact that index returns can be driven by a small number of stocks.

Momentum:  magnify returns when stocks are driven by momentum.

Long-term trends:  take positions in stocks or basket of stocks that are at the forefront of technological or societal change with the scope to appreciate significantly over multi-year periods.
How do short and leveraged collateralised ETPs differ from other leveraged instruments?

Some of the key differences are highlighted in the table below:

  Short and leveraged daily ETPs CFDs / Spread betting Futures / Options Structured products (Certificates)
Leverage factor Limited Range +/- 3x Variable depending on regulation No limit No limit
Multiple market makers competing on price X X
Maximum bid/ask spread (stock exchange monitored) X X
At least one market maker quoting continuously X
Credit risk mitigated by collateral X X
Traded through a share dealing account X X
Minimum trade size 1 share Very small Generally $1k+ Generally £1k+
Losses limited to initial investment X X
Built-in stop-loss mechanism X X Product specific
Margin required X X

 

 

Who are the different parties involved in the GraniteShares collateralised ETPs?

The following entities undertake the following roles in relation to the ETPs:

Role Entity
Issuer of Collateralised ETPs GraniteShares Financial Plc
Swap Counterparty Natixis
Swap Collateral Custodian The Bank of New York Mellon SA/NV
ETP Security Trustee BNY Mellon Corporate Trustee Services Ltd
What is the structure of the collateralised ETPs?
The ETPs are collateralised debt securities.
The debt security structure is used in Europe to provide exposure to mainstream asset classes, typically when they cannot be put into a UCITS fund, e.g. physically backed gold, non-diversified indices.
In the case of collateralised ETPs, the purpose of the collateral is to provide protection for the investor in the event of a default by the Swap Provider, Natixis.
The ETP structure is open-ended and, depending on the jurisdiction, the debt securities may be eligible for inclusion in UCITS funds.
Who is the issuer of the collateralised ETPs, where is domiciled and what exactly is its role?

GraniteShares Financial Plc is a special purpose vehicle, which is domiciled in Ireland.  The Issuer is a standalone entity, ring-fenced from other GraniteShares entities, whose sole purpose is to issue Collateralised ETPs as outlined in the base prospectus, together with any supplements and related documentation.

What is the credit risk when investing in collateralised ETPs?
The ETPs are collateralised to mitigate credit risk to the investor. The ETPs are backed by collateral held by the Swap Collateral Custodian, The Bank of New York SA/NV.
The custodian is responsible for ensuring that the collateral posted at least matches the value of the outstanding ETPs. Collateral eligibility has been designed to take account of various factors including credit quality and liquidity. The schedule of eligible collateral is shown on the Collateral Factsheet and collateral currently posted is shown on each product page.
What is the role of the ETP Security Trustee?

In the event of a Swap Counterparty default and non-payment of any corresponding redemption amount under the GraniteShares ETPs, BNY Mellon Corporate Trustee Services Ltd, the ETP Security Trustee, would be in a position to enforce the security and to sell the collateral in order to redeem the outstanding GraniteShares ETPs.

What would happen to the Collateralised ETPs if GraniteShares were to go bankrupt?

There should be no impact on the ETPs as the Issuer, GraniteShares Financial Plc, is a standalone entity, ring-fenced from other GraniteShares entities. 

Who provides the indices tracked by the Collateralised ETPs?

The indices are created, calculated and provided by independent third parties, such as Solactive AG..