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UBS Launches Geared REIT ETN

Olly Ludwig

UBS, the Swiss bank known for its private client banking, today is launching a double-exposure long ETN providing exposure to global real estate investment trusts focused on mortgages, giving investors access to an income-producing pocket of the investment universe that has been showing signs of life in recent months.

The Etracs Monthly Pay 2xLeveraged Mortgage REIT ETN (MORL), which comes with a price tag, or “annual tracking rate,” of 0.40 percent, is based on the Market Vectors Global Mortgage REITs Index. The benchmark is based on overall performance of publicly traded mortgage REITs that derive at least 50 percent of their revenues from mortgage-related activities, according to the ETN’s prospectus .

REITs, like master limited partnerships and business development companies, are some of the more notable examples of how investors can get yield in a post-crash environment characterized by ultra-low bond yields and a real prospect of bond prices falling should inflation rear its head and as the economy normalizes.

With MORL’s index shooting off a yield of around 10 percent, the double-exposure component means that yield is around 20 percent. Price movements of the security are also magnified by a factor of two. MORL joins a single-exposure fund linked to the same index, the Market Vectors Mortgage REIT Income ETF (MORT).

Good Timing For The Launch 

The launch of MORL comes as the mortgage market has been showing extra signs of life since late summer, when the Federal Reserve launched QE3—its third round of so-called quantitative easing aimed at easing borrowing costs and, ultimately, lowering borrowing costs. The Fed is buying $40 billion of mortgage-backed securities monthly, indefinitely.

The move has not only spurred a new wave of refinancing, but has also led to an uptick in actual property purchases. That turn of events follows signs of improvement in the residential market. For example, since late spring, the S'P Case Shiller Home Price indexes have shown the clearest signs of price stabilization in real estate since financial markets crashed in 2008.

Indeed, the latest round of U.S. Census Bureau housing data, released Wednesday, showed new housing starts hit a four-year high in September, coming in at an annual seasonally adjusted rate of 872,000. That number shows an increase of nearly 35 percent in housing starts year-on-year, a rate that far exceeded market expectations, according to news reports.

UBS said the ETN will provide double the exposure of the underlying index on the way up and on the way down. It is rebalanced monthly, which helps minimize the sometimes-quick divergence between price and the index seen in leveraged exchange-traded products that rebalance daily.

The ETNs are senior unsecured debt securities issued by UBS AG, and they are currently set to mature on Oct. 16, 2042, the prospectus said.


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