Investors can now super charge their income portfolio with UBS's new leveraged diversified high income exchange traded note.
The ETRACS Monthly Pay 2xLeveraged Diversified High Income ETN (NYSEARCA:DVHL), which began trading last week, tries to generate the variable monthly coupon linked to 2 times the net cash distributions of the underlying index, NYSE Diversified High Income Index, which comes out to be 13.63%, according to a press release.
The new ETN is a leveraged version of the ETRACS Diversified High Income ETN (NYSEARCA:DVHI), which launched in September. DVHI's index yield is 7.71%.
DVHL'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.
As a diversified portfolio, the ETN tracks various geographic regions and a diverse group of asset classes and sectors. Along with individual stocks, HDVL also includes broad exchange traded funds to capture sector and asset allocations.
Specifically, equities make up 60% of the portfolio, including business development companies 15%, energy master limited partnerships 15%, mortgage real estate investment trusts 7.5%, U.S.-listed equities 7.5% and international equities 7.5%. Fixed-income, bonds and related assets make up 40% of the ETN, including munis ETFs 10%, high-yield bond ETFs 10%, emerging market bond ETFs 10% and preferred stock ETFs 10%.
"Since its inception, the index has delivered attractive returns and significant yields from a highly diversified asset pool," Paul Somma, Senior ETRACS Structurer, said in the press release. "DVHL provides investors with 2x access to this compelling index that marries significant income potential and diversification, and further cements ETRACS' reputation as a leading innovator of income-generating products."
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