Real-Estate-Price ETFs

Macro Shares filed for two ETFs that allow for gaming real estate prices as measured by the S&P Case-Shiller Composite 10 Home Price Index.

The 10 in the name refers to the ten cities in the index, which are Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington D.C.

One fund will go double long the index with ticker UMM and the other will go double short the index with ticker DMM.

You can read more about these from IndexUniverse and 24/7 Wallstreet.

We all know that real estate prices have been going down. One report a couple of weeks ago, via Bloomberg, had the Case-Shiller 20 Index (so a bigger sampling) declining by 14.4% versus the previous year.

For now there seems to be no consensus of how long before the house decline bottoms and turns around. Speculation on when the turn occurs could make both ETFs very popular when they list, assuming the funds do list quickly.

Both oil macro shares garnered a lot of attention for the unintended consequence of trading very far their respective NAVs. One explanation I heard for this a long time ago, but it may not be correct, was that the oil macros had to price in the reality of contango and backwardation that exists in the oil market. I do not know if the new home price macros will have some other unintended consequence like maybe stemming from how Case-Shiller indexes don't price cash indexes only futures markets. At least I could not find cash indexes on Yahoo Finance, BigCharts or StockCharts.com.

Assuming no unintended consequence and once the market does bottom it is possible that this becomes a one-way trade for a long time. The history of housing cycles seem to have far fewer downturns than with equities. Keep in mind this is just an initial reaction/hunch that could be several years away from even having a shot of being correct.

Forgetting the specifics of the of these products, MacroShares Major Metro Housing Up ETF (UMM) and MacroShares Major Metro Housing Down ETF (DMM) stand to be the first of what I believe will be many more products that offer access to equity-like returns that don't really involve exposure to capital markets--things like GDP, carbon credits and some of the other ideas that have come up before in this blog, like maybe timberland in New Zealand and so on.

I am convinced that the alternative asset space is going to grow, asset allocations will as a matter of routine include alternative assets along with stocks, bonds and so on, and products like these will be part of the mix.

It is still very early (UMM and DMM haven't even listed yet after all) and we all have more to learn, but it will happen.

Comments

[sbenard:]

Wow! Another new novel ETF.

2008 Jun 14 10:12 PM

[Kunst:]

There are more mutual funds than stocks. Maybe ETFs will pass them both.

2008 Jun 15 03:03 AM