As its name implies, a unit split is when an ETF increases the number of outstanding units of the ETF at a particular ratio (such as 2 for 1), and decreases the net asset per unit of the ETF, by the inverse ratio. In a unit split, there is an increase in the number of units issued accompanied by a proportional decrease in the unit price (Net Asset Value), such that the value of holdings
remains the same after the split.
Here's an example:
If on Friday, May 4, 2015, at the end of the trading day for the TSX, it was announced that units of the following ETF would be split on the basis of the ratio (the "Split Ratio") set out below, and began trading on a split adjusted basis on Monday, May 7, 2015. The split becomes effective on May 9, 2015, for unitholders of record on that date:
ETF |
Ticker |
Split Ratio |
BetaPro Natural Gas -2x Daily Bear ETF |
HND |
4:1 |
A 4:1 unit split means each unit will be split into four units. After the split, you will have four times the number of HND shares you had previously. Additionally, the price of HND will be divided by a factor of four. Mathematically, this
will not impact the value of your investment in HND. For example, if you had 100 shares worth $2,000 prior to the split, you now have 400 shares that are still worth $2,000 post-split.
Pre-split:
Shares 100
NAV $20 (per share)
Value $2,000
Post-split on a 4:1 basis:
Shares 400 (100 x 4)
NAV $5 (per share) ($20 ÷ 4)
Value $2,000