UBS, a Switzerland-headquartered investment bank, has announced the launch of two new ETRACS Exchange Traded Notes (ETNs) designed to deliver high monthly income and leveraged exposure to blue-chip dividend indices.
UBS has launched a pair of 2x leveraged dividend-income ETNs aimed at sophisticated professional investors.
The two ETNs are the ETRACS Monthly Pay 2x Leveraged Dow Jones Select Dividend Index ETN (DVYL), which is linked to the Dow Jones US Select Dividend Index, and the ETRACS Monthly Pay 2x Leveraged S&P Dividend ETN (SDYL), which is linked to the S&P High Yield Dividend Aristocrats Index.
The indices the ETNs are linked to are specifically structured to measure the performance and income of high-dividend-paying companies in the US.
Importantly, both indices employ certain screening rules to ensure that only companies with sustainable dividend practices are included.
Essentially, the ETNs provide two-times leveraged exposure to the index, as well as significant income potential in the form of variable monthly coupons linked to two times the dividend yield of the index.
Chris Yeagley, Managing Director and US Head of Equity Structured Products at UBS, said: “Enhanced yield potential and monthly distributions are key differentiators of our latest ETRACS offering. Yield-oriented investors now have access to these innovations in convenient exchange-traded securities.”
The Dow Jones US Select Dividend Index, the underlying index for the ETRACS Monthly Pay 2x Leveraged Dow Jones Select Dividend Index ETN, represents the top 100 US stocks as measured by dividend yield, selected annually and subject to screening and buffering criteria. The index is weighted by the indicated annual dividend of its components, where the weight of any individual company is restricted to 10%.
In order for a company to be eligible for inclusion in this index, it must, among other criteria, be a dividend-paying company in the Dow Jones US Index that has a non-negative historical five-year dividend-per-share growth rate; have a five-year average dividend to earnings-per-share ratio of less than or equal to 60%; and have paid dividends in each of the previous five years.
In a similar manner, the S&P High Yield Dividend Aristocrats Index, the underlying index for the ETRACS Monthly Pay 2x Leveraged S&P Dividend ETN, is designed to measure the performance of the 60 highest dividend-yielding S&P Composite 1500 constituents which have followed a managed-dividends policy of consistently increasing dividends every year for at least 25 years.
This index is weighted by the indicated annual dividend yield with constituents re-weighted every quarter and the constituent universe reviewed every December. The index methodology incorporates minimum market capitalisation and liquidity criteria, as well as buffers to reduce turnover at index rebalancings. Modifications are made to stock weights to ensure no stock represents more than 4% of the index weight, and to enhance index basket liquidity at each quarterly rebalancing.
As at 30 April 2012, the Dow Jones Select Dividend Index had a 2x dividend yield of 7.9%, while the S&P High Yield Dividend Aristocrats Index had a 2x dividend yield of 6.96%.
The ETNs are listed on the NYSE Arca and come with fees of 0.30% and 0.35%.