UBS, the Swiss bank known for its private-banking arm, today rolled out the world’s first ETN focused on the REIT space—a double-exposure internationally focused security that’s based on the same index as the $2.6 billion SPDR Dow Jones International Real Estate ETF (NYSEArca:RWX - News).
The ETRACS Monthly Pay 2X Leveraged Dow Jones International Real Estate ETN (NYSEArca:RWXL - News) has 127 holdings in 22 different countries but is dollar denominated, UBS said in a fact sheet about the ETN. RWXL has an annual expense ratio of 0.40 percent, or almost a third cheaper than RWX’s 0.59 percent annual cost.
Both securities are based on the Dow Jones Global ex-U.S. Select Real Estate Securities Index. RWXL’s payouts will also be double what the index delivers, and the leveraged component will be reset monthly rather than daily, as is the case with many leveraged and inverse exchange-traded products on the market.
While domestic REITs have performed better than international REITs in the past year, many investors see greater long-term potential in international property markets. For example, the price of the Vanguard REIT ETF (NYSEArca:VNQ - News) has climbed 10 percent in the past year, while the price of SSgA’s RWX has fallen by more than 5 percent, according to data on Google Finance. The question going forward is, When, if ever, will the international market take the lead, particularly given slowing growth in China?
The Dow Jones Global ex-U.S. Select Real Estate Securities Index is a free-float-adjusted capitalization-weighted index designed to measure the performance of publicly traded international real estate companies, excluding those in the United States.
While RWXL is the only ETN in the REIT space, and the only exchange-traded product to offer double exposure, it has a number of ETF competitors apart from RWX. They include:
- First Trust FTSE EPRA/NAREIT Developed Markets Real Estate ETF (NYSEArca:FFR - News)
- iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (NasdaqGM:IFGL - News), which focuses on developed foreign markets and largely excludes the U.S.
- iShares S'P Developed ex-U.S. Property Index Fund (NYSEArca:WPS - News), which tracks S'P’s REIT benchmark of developed markets outside of the U.S.
- WisdomTree Global ex-US Real Estate ETF (NYSEArca:DRW - News), which follows its own specially developed index that weights real estate companies outside of the U.S.
- Vanguard Global ex-U.S. Real Estate ETF (NYSEArca:VNQI - News)
While double exposure to the index sounds appetizing on the upside, the flip side is that RWXL exposes investors to twice the amount of any monthly decline in the level of the index. And if the monthly compounded leveraged return is negative and insufficient to offset the effect of the accrued fees and redemption fees, investors could lose some or all of their investments at maturity or upon redemption, UBS said in a fact sheet describing its new ETN.
Another potential risk is that RWXL, as an ETN, represents the senior unsecured debt obligations of the issuer UBS, and it’s not—either directly or indirectly—guaranteed by any third party. As a result, the actual and perceived creditworthiness of UBS will affect the market value of RWXL prior to maturity or redemption, the company said.
UBS said the top 10 countries and allocations in the index as of Feb. 29 were:
- Australia − 17.86 percent
- Japan − 17.22 percent
- U.K. − 11.54 percent
- Hong Kong − 10.35 percent
- Canada − 10.18 percent
- Singapore − 9.79 percent
- France − 8.21 percent
- Switzerland − 2.34 percent
- Brazil − 2.06 percent
- Austria − 1.75 percent
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