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UBS’ New Leveraged CEF ETN with 19% Yields


UBS Investment Bank, the issuer behind the ETRACS exchange traded notes, launched a new note based on closed-end funds that could generate robust yields, but investors should be comfortable with the leveraged aspect.

The ETRACS Monthly Pay 2xLeveraged Closed Fund ETN (CEFL) began trading Dec. 11, according to a press release.

The ETN tries to reflect the monthly compounded 2x, or 200%, leveraged performance of the ISE High Income Index, which is comprised of 30 U.S. closed-end funds selected based on yield, share price discount from net asset value and trading liquidity.

Top holdings include Eaton Vance Enhanced Equity Income Fund II (EOS) 4.9%, Eaton Vance Tax-Managed Diversified Equity Income Fund (ETY) 4.8%, AllianzGI NFJ Dividend, Interest & Premium Strategy Fund (NFJ) 4.8%, Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG) 4.7% and Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund (ETW) 4.7%.

CEFL’s shows an index yield of 19.4%. Investors should note that the figure is equal to two times yield in the underlying index.

“The index tracked by CEFL selects and ranks the 30 component closed-end funds on the basis of their income yield and their discount from NAV,” Paul Somma, Senior ETRACS Structurer, said in the press release. “So CEFL is expected to provide investors significant income potential, as well as the opportunity for price appreciation, all by way of a single, exchange-traded security.”

A closed-end fund, or CEF, is comprised of a specialized portfolio of securities. The fund is a publicly traded company that raised a fixed capital through an initial public offering. While a CEF is listed and trades like a stock on an exchange, the fund has a fixed number of shares. New shares or units are not created to meet growing demand.

ETNs are not exchange traded funds. ETNs are senior, unsecured, unsubordinated debt securities issued by an underwriting bank. Consequently, ETNs are subject to the credit worthiness of the issuer.

CEFL’s leverage component is reset monthly, unlike most other exchange traded funds that track holdings on a daily basis. Consequently, investors may hold the ETN for a longer period, but the performance can still diverge over extended periods due to compounding effects.

For more information on new fund products, visit our new ETFs category.