Holding Company Depository Receipt (HOLDR)
Candlefocus EditorHOLDRs were put together by Merrill Lynch and offered material benefits for both investors and companies. For investors, HOLDRs represented a way to add a useful level of diversification, allowing the investor to access several stocks in a certain industry or sector with one purchase. Additionally, investors required no ongoing research or analysis in order to benefit from HOLDRs. The value of the HOLDRs followed the underlying stock prices, thus, the investor simply tracked the performance of the enterprises comprising the HOLDR.
For companies, HOLDRs meant increased exposure, as they be could be traded and marketed in the same unified fashion as individual stocks. This helped to increase primary market liquidity, and also provided additional liquidity in the secondary market.
HOLDRs were issued in ‘baskets’, where each basket held 20 stocks. These stocks were usually stocks belonging to the S&P 500 index, and investors could purchase a HOLDR to gain exposure to a wide range of companies without needing to purchase the individual stocks.
Unlike ETFs, each HOLDR represented individual ownership in the stocks which its underlying assets comprised of, so its value fluctuated according to the prices of the underlying stocks.
However, in 2011, the last of the HOLDRs on the NYSE were either liquidated or converted into ETFs. This was due to investors seeing far more liquidity and lower fees associated with ETFs, and thus, the popularity of HOLDRs fell.
Although HOLDRs are no longer available on the NYSE, they still represent a useful form of diversification offered by Merrill Lynch for certain investments. Despite their lack of popularity - a consequence of the rise of ETFs - investors and companies can still benefit from the HOLDRs still in circulation, given the aforementioned benefits they offer.