HOLDRs are a group of ETF-like investments that investors/traders can use to get exposure to different sectors or industries. HOLDRs are a little more complex than ETFs but offer many benefits. So, what makes HOLDRs different from most ETFs?
HOLDRs are a fixed basket of 20 stocks. Unlike a mutual fund or ETFs, you own the underlying stocks but rather than paying 20 trade commissions, you only pay one. HOLDRs are not managed like ETFs; no holdings will be added to the HOLDRs. They also trade throughout the day like stocks and ETFs.
How To Buy And Sell HOLDRs
The big difference in HOLDRs is they only trade in 100 lot increments. This keeps smaller investors/traders away from them as the cheapest HOLDRs to get in is the B2B Internet HOLDRs (BHH), which trades at $0.25. Cost of 100 is only $25.00 and only has 2 holdings, now. The highest HOLDRs to get into is the Biotech HOLDRs (BBH) that trades at $163.48, which costs $16,348.00. You can purchase/sell HOLDRs through your brokerage account like any stock or ETF but you must do so in 100 share increments.
What Happened To The Holdings?
Wait a second…I said that HOLDRs have a fixed basket of 20 stocks, right? How does the above B2B Internet HOLDRs (BBH) have only 2 holdings? This is where they get confusing. The HOLDRs start with 20 stocks at the IPO that you own. When one of these stocks is bought by another company, you will have the shares of the purchasing company appear in your brokerage account, and your HOLDRs will have one less holding. If one of the stocks inside the HOLDRs spins off a company…guess what? You will have shares of the spin-off appear in your brokerage account rather than inside the HOLDRs.
You Buy The HOLDRs And Own The Stock
Remember you purchase the HOLDRs but own the stocks within it, unlike owning an ETF. You maintain full voting rights just as if you bought shares of the stocks independently. You will receive reports for every company inside the HOLDRs, unlike ETFs getting an annual report on the ETF itself.
What About Dividends?
Dividends are not reinvested into the HOLDRs. Dividends will appear in your brokerage account just like owning the stock. Dividends distribution is the same as with owning each stock individually. Some HOLDRs have multiple dividend payments a month while others are less frequent.
Options are available on HOLDRs and HOLDRs can be shorted.
Want to know more about them? Go to www.HOLDRs.com.
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