What Was a Holding Company Depository Receipt (HOLDR)?
Let me tell you about holding company depository receipts, or HOLDRs. These were securities that let you, as an investor, buy and sell a basket of stocks all in one go. They worked a lot like exchange-traded funds (ETFs), giving you a way to trade stocks tied to a specific industry, sector, or group. But ETFs ended up being more efficient and flexible for both investors and issuers.
That's why HOLDRs got phased out. By the end of 2011, they were discontinued, with some converted straight into ETFs.
Key Takeaways
- A holding company depository receipt (HOLDR) was a diversified investment product from Merrill Lynch that gave you access to multiple stocks in a certain industry or sector through one single holding.
- Unlike an ETF, each HOLDR meant you had individual ownership in the underlying stocks, so its value moved right along with those stocks' changes.
- HOLDRs don't trade anymore; the last ones were either liquidated or turned into ETFs back in 2011.
Understanding Holding Company Depository Receipts (HOLDRs)
When I talk about a holding company depository receipt (HOLDR), I'm referring to a fixed set of publicly traded stocks bundled into one security. Merrill Lynch created these, and they only traded on the New York Stock Exchange (NYSE). As an investor, you could use HOLDRs to get exposure to a market sector without spending a fortune, and it helped you diversify within that sector. If you tried to do the same thing by buying each stock separately, you'd rack up way more in commissions.
These HOLDRs covered all sorts of areas, like biotech, pharmaceuticals, and retail. Merrill Lynch picked what went into each one, so they could differ a lot from each other. Here's a big difference from ETFs: with HOLDRs, you directly owned the underlying stocks. That meant you got voting rights and dividends, which you don't get with ETFs.
ETFs and the Demise of HOLDRs
People often group HOLDRs with exchange-traded funds (ETFs), and sure, they both offer low costs, low turnover, and tax efficiency. But they're not the same. ETFs are usually the better choice for investors and serve the same basic purpose as HOLDRs.
ETFs invest in indexes with lots of components that change regularly. A HOLDR, on the other hand, was a static group of stocks from one industry, and those components hardly ever shifted. ETFs track an underlying index, but HOLDRs didn't. Plus, ETF holdings are managed and adjusted now and then to aim for the best returns within that index. If a company got acquired and dropped from a HOLDR, nothing replaced it, which could make the HOLDR more concentrated and riskier.
You typically bought HOLDRs in round lots of 100, which could be pretty expensive for smaller investors and keep some people out. Still, HOLDRs played a role in making ETFs popular. In the end, ETFs took over—some HOLDRs got absorbed into them, others shut down and liquidated. By December 2011, out of the 17 left, six became ETFs, and the other 11 were gone.
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