What was a Holding Company Depository Receipt (HOLDR)?
A holding company depository receipt (HOLDR) enables investors to trade several equities in one transaction. HOLDRs, like ETFs, enable investors to trade stocks inside a particular industry, sector, or group. ETFs are more efficient and adaptable for investors and issuers.
The end of 2011 saw HOLDR securities withdrawn, and some transformed into ETFs.
Holding Company Depository Receipts
A holding company depository receipt (HOLDR) is an investment of a set group of publicly traded equities. Merrill Lynch exclusively traded HOLDRs on the NYSE. Investors might diversify within a market sector at a low cost with HOLDRs. The investor would have had to buy each firm separately to achieve the same diversity, boosting fees.
Merrill Lynch analyzed HOLDRs from several industries, including biotech, pharmaceutical, and retail, and found that their content might vary significantly. HOLDER investors have direct ownership in the underlying equities, unlike ETF investors, resulting in voting and dividend rights.
ETFs and HOLDRs’ Demise
Many people confuse HOLDRs with exchange-traded funds (ETFs), although they are separate investment vehicles despite their low costs, turnover, and taxes. While HOLDRs provide a similar role, investors prefer ETFs.
ETFs invest in complex, changing indices. In contrast, a HOLDR was a stable group of industry-specific stocks with few changes. HOLDRs do not monitor an underlying index, but ETFs do. Additionally, ETF holdings are monitored and changed to maximize index returns. Acquisitions and removals from HOLDRs did not replace shares, which might increase concentration and risk.
HOLDRs, typically purchased in 100-unit lots, may be too expensive for smaller investors, limiting their participation. HOLDRs contributed to the popularity of ETFs, finally leading to the closure and liquidation of certain HOLDRs. Six of the 17 remaining HOLDRs were converted into ETFs, and 11 were liquidated in December 2011.
Conclusion
- Merrill Lynch’s holding company depository receipt (HOLDR) allowed investors access to numerous stocks in a sector or industry with a single holding.
- Unlike an ETF, each HOLDR reflected individual ownership in the equities underlying it, and its value fluctuated with the underlying stocks.
- Finally liquidated or converted into ETFs in 2011, HOLDRs no longer trade.
