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 (NYSEArca: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 (NYSEArca: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
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
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