UBS continued to expand its lineup of monthly leveraged ETPs this month, debuting a product that is designed to deliver amplified exposure to international real estate firms. The new Monthly Pay 2x Leveraged Dow Jones International Real Estate ETN (RWXL) will deliver leveraged exposure to a benchmark that consists of REITs from around the world, excluding the U.S. The new ETN will offer monthly exposure to the underlying index, meaning that the note will be expected to deliver monthly results and yields that correspond to 200% of those of the target benchmark [see also Are U.S. REIT ETFs A Buy In 2012?].
Under The Hood
RWXL will seek to deliver 2x leveraged exposure to the same index to which the SPDR Dow Jones International Real Estate ETF (RWX) is linked. That fund has about 125 individual securities, with the largest allocations going to Westfield Group (7.1%), Unibail-Rodamco (6.2%), and Brookfield Asset Management (6.2%) [see also Examining Three Global Real Estate ETFs].
The underlying index consists of REITs from more than 20 different international markets, including both developed and emerging economies. The largest allocations go to Australia (18%), Japan (17%), and the U.K. (12%). The weightings afforded to emerging markets are relatively small; Brazil and the Philippines each represent about 2% of assets, while South Africa, Malaysia, Thailand, and Poland represent less than 1% in each. So the index is tilted heavily towards developed markets, which make up about 90% of assets.
RWXL will be the first ETP to offer monthly leveraged exposure to real estate; the other products in the Leveraged Real Estate ETFdb Category generally deliver leverage that resets on a daily basis.
The new leveraged ETN from UBS will charge an annual expense ratio of just 0.40%. That’s considerably cheaper than the beta ETF from State Street; RWX charges 0.59% annually.
High Yield Delivered
RWXL will deliver an effective leveraged distribution yield of about 7.6%, a hefty payout in the current environment. REITs have traditionally been a source of attractive current yields, since they are required to pay out a significant portion of their earnings in order to realize certain tax advantages. The leveraged approach utilized by UBS allows that payout to be amplified even further, resulting in an ETN that has a fair amount of risk but also a very substantial dividend yield.
UBS has been a pioneer in launching monthly leveraged ETNs that target high yielding securities; the company previously debuted notes that target BDCs (BDCL) and MLPs (MLPL). The effective yields on those ETNs push into the double digits, with BDCL delivering an annual leveraged yield north of 18% [see also Five ETFs With Sky High Yields].
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Disclosure: No positions at time of writing.
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