Housing Exchange Traded Trusts Debut Today

Macro Markets exchange traded trusts will start trading on the NYSE today (June 30). These have been discussed in previous articles here and here. Another excellent discussion has been published by Ed Hynes here. Below are the news blast images out yesterday:

These trusts have a five year maturity. If the Case-Schiller Composite-10 index moves 33.3% up or down, and stays there (or beyond 33.3% change) for three consecutive months, the trusts will suffer early termination. One of the trusts will be terminated at approximately 2x the original value and the other will be terminated at zero value.

For example, if, at termination, the Case-Schiller Composite-10 has lost 10%, DMM will be terminated with a distribution of approximately$32.50 per share, a 30% gain. UMM will be terminated under those conditions with a distribution of approximately $17.50 per share, a 30% loss.

Conversely, if the Case Schiller Composite-10 has gained 20% after five years, DDM will terminate with a distribution of approximately $10 (-60%) and UMM will termiate with a distribution of approximately $40 per share (+60%).

The distributions at termination will be adjusted by the net of interest earned for the last quarter minus any accumulated management fees and minus termination expenses.

The assets are invested in short-term U.S. government obligations, overnight repurchase agreements secured by Treasuries and cash. In addition to the termination distributions, there may be quarterly dividend distributions of the accumulated interest net of management expenses.

Investors considering these two trusts should read the prospectuses. Warning: they are difficult to get through. The prospectuses, and other literature, are available here.

Comments

[basehitz:]

I like this idea of playing a real estate recovery, while leaving it optional the geographically fixed location. Will add to the research in-basket. Thank you John for your frequent informative posts.

Jun 30 02:11 PM

[ESK:]

Great post! I would also recommend following the IAS360 House Price Index (www.iasreo.com/ias360....). It’s the only timely and granular index to go down to the county level making it the leading industry index.

Jun 30 05:38 PM

[Steven Hansen:]

ah, the question is John do you see this as a way to go. i am a little hesitant because the market is being manipulated by government intervention.

i will admit that free market forces have always been an illusion - but when big brother starts playing the outcomes seem random.

Jun 30 10:21 PM

[John Lounsbury:]

Steve - - -

I am considering buying DMM, but have not made up my mind. I am expecting the C-S Comp 10 to go down another 10% or so in the next 9-18 months before the national average prices hit bottom. That would produce a return of 30% +/-, which is 40% annualized if we get minus 10% in 9 months and 20% annualized if we get there in 18 months. Both are pretty attractive returns.

One thing I like about these trusts is that they should have very low volatility since the C-S index moves in quite a smooth manner. After we hit bottom I'll then decide if I want to try UMM. I'm not sure at this point if rapid price appreciation for houses will be likely coming out of this. I don't think UMM is such a great place to tie up my money if the C-S index only moves 1 or 2% a year. That would be 3 - 6% annual return.

Sorry to have not made a commitment yet, but that's where my head is at. I'll make a decision on what to do for myself and clients in the next few days.

Jul 01 12:00 AM

[Steven Hansen:]

thanks John - your answer was better than the article. you are very good at this type of analysis.

Jul 01 06:22 AM