Is There A Bad Bet With The MacroShares Housing ETP’s? (UMM, DMM)

housing-etfsThe MacroShares Major Metro Housing exchange-traded products which were launched in June of 2009, let you bet 3X (UMM) the movement of the Case-Shiller index of home prices in ten major U.S. cities or 3X (DMM) the inverse of the index’s movement.   The major metropolitan cities throughout the country include  Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington, D.C.

These ETP’s are a great way to play the real estate market without the closing costs on purchasing a home or the hassle of managing the day to day operation of a home.  With real estate prices stabilizing and at recession lows how could an investor go wrong betting on the real estate market?  The movement in real estate prices is certainly not like the movement in stock prices.  The MacroShares Major Metro Housing Down (DMM) ETP would just seem like a bad bet considering the ETP is not set to mature until November of 2014, but then again anything can happen. 

MacroMarkets Chief Economist and co-founder, Robert Shiller was quoted saying “My guess would be that home prices are going to level off — they’re not going to keep falling,”  Still, it’s “hard to predict” a speculative market, and “I am not optimistic that we’re going to see any sharp rebound.”

There is also some concern with the product  functionality because of the 3X leverage.  “Because of technical quirks, the securities are unlikely to track the indexes properly. Instead, investor expectations for housing values will likely determine how the securities trade.  But the timing of the products’ launch — just as the end of the long slide in housing prices is finally coming into view-and their 1.25% expense ratios are the biggest strikes against this dumb idea,”  Elizabeth Ody Reports From Kiplinger. 

Here is a look at some of the details on the two ETP’s  from MacroShares below:

MacroShares Major Metro Housing Up (UMM) allow investors to express a bullish view on the movement of the S&P/Case-Shiller Composite-10 Home Price Index.  The underlying value (UV) of UMM tracks the percentage change of the index with three times leverage. The market price of UMM reflects other factors, including consensus expectations of the cumulative return of S&P/Case-Shiller Composite-10 Home Price Index, plus potential quarterly net income distributions, over the remaining term of the security.
 
MacroShares Major Metro Housing Up funds are collateralized via a trust secured by investments in short-term U.S. Government obligations, overnight repurchase agreements secured by Treasuries and cash.   This trust collateral generates automatic income distributions for MacroShares investors to the extent that trust income exceeds trust expenses within a quarterly period.

MacroShares Major Metro Housing Down (DMM) allow investors to express a bearish view on the movement of the S&P/Case-Shiller Composite-10 Home Price Index.  The underlying value (UV) of DMM tracks the percentage change of the index in an inverse manner with three times leverage. The market price of DMM reflects other factors, including consensus expectations of the cumulative return of S&P/Case-Shiller Composite-10 Home Price Index, plus potential quarterly net income distributions, over the remaining term of the security.   

 

MacroShares Major Metro Housing Down funds are collateralized via a trust secured by investments in short-term U.S. Government obligations, overnight repurchase agreements secured by Treasuries and cash.   This trust collateral generates automatic income distributions for MacroShares investors to the extent that trust income exceeds trust expenses within a quarterly period.  

 

Take a look on how they have performed since inception below:

 

Chart for MACROSHS HOUSING UP (UMM)

 

Chart for MACROSHS HOUSING DWN (DMM)

 

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