UBS launches 2x leveraged international real estate ETN

Mar 23rd, 2012 | By | Category: Alternatives / Multi-Asset

UBS, the Switzerland-headquartered investment bank, has announced the issuance of the UBS ETRACS Monthly Pay 2xLeveraged Dow Jones International Real Estate ETN (RWXL), an exchange-traded note (ETN) providing leveraged exposure to international real estate securities.

UBS launches 2x leveraged international real estate ETN

UBS has expanded its ETRACS suite of ETNs with the launch of RWXL, a 2x leveraged ETN providing exposure to real estate markets outside of the US.

RWXL provides 200% monthly exposure to the Dow Jones Global ex-US Select Real Estate Securities Index, a float-adjusted market-capitalisation weighted index that measures the investable universe of publicly traded real estate securities in countries outside of the US.

The index includes commercial and residential equity real estate investment trusts (REITs) and real estate operating companies (REOCs) that derive at least 75% of the their total revenue from the ownership and operation of real estate assets. The index specifically excludes mortgage REITs and real estate finance companies.

Currently, the top five holdings are Westfield Group (Aus), Unibail-Rodamco (Fra), Brookfield Asset Management (Can), Mitsui Fudosan (Jap) and Land Securities (UK). The top five country holdings are Australia, Japan, UK, Hong Kong and Canada. In total, the index is comprised of 127 constituents from 22 different countries around the world.

Due to the more commercially advanced state of developed-world property markets compared to emerging markets, the index has an overwhelming developed-market bias. That said emerging markets are represented with allocations to Brazil, Philippines, South Africa, Malaysia, Thailand, Poland and Turkey.

Owing to the leveraged structure of the note, RWXL will deliver an income yield twice that of the underlying index. In this case, it equates to a hefty 7.60% (as of February month end).  This chunky yield is undoubtedly one of the product’s key selling points and will appeal to investors seeking income in what is an historically low interest-rate environment.

Commenting on the launch, Christopher Yeagley, Managing Director and US Head of Equity Structured Products at UBS, said: “This ETN is designed for investors who seek a high yield and are bullish on this Dow Jones international real estate index.

“RWXL offers high monthly income potential, international diversification and leveraged exposure to the index, all by way of a single, USD-denominated, exchange-traded security.”

While investors need to be aware of the added risks of investing in such a product, most notably relating to credit risk to UBS and the multiplying effect of leverage on investment returns, the ETN could represent an attractive proposition.

Indeed, with the global economic recovery broadly back on track and commercial property fundamentals improving as steady demand for space outstrips low supply, the income yield and capital upside potential this product offers makes it highly compelling. Moreover, with an annual expense ratio of just 0.40%, the ETN represents extremely good value.

The ETN is rated A by S&P and Fitch, and Aa3 by Moody’s. This, according to S&P, translates into a “strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.”

The ETN is listed on the NYSE Arca.

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