ETFs Tracking Home Prices Set To Launch

June 29, 2009

ETFs tracking home prices move forward and should be ready to launch on Tuesday.


MacroMarkets has received final approval to launch its long-awaited and oft-delayed home price securities on June 30.

As a result, its sponsor says it's planning for shares of the MacroShares Major Metro Up (UMM) and the MacroShares Major Metro Down (DMM) to start trading Tuesday on the New York Stock Exchange.

The funds are designed to deliver 300% and -300% of the return of the S&P/Case-Shiller Home Price 10 Index, the leading benchmark of residential home prices in the U.S. They will be the first products that allow investors to speculate on the direction of residential home prices.

“We really believe that this is a watershed event,” said Sam Masucci, CEO of MacroMarkets. “[These products] are opening up the largest unsecuritized asset class in the world.”

The launch comes after a series of delays, including an aborted effort to launch the products via a unique initial public offering in May. (See related story here.)

The new MacroShares are unique. They do not hold houses or any other traditional home-related securities. Rather, they gain exposure to real estate prices through MacroMarkets’ unique “teeter-totter” product structure.

Under that structure, the Up and Down Macros hold Treasury securities as their sole asset. As the benchmark index moves up or down, those Treasuries are transferred back and forth between the Macros. The structure allows MacroShares to launch products tied to any reference price, including previously uninvestable benchmarks like national home prices.

Importantly, the products are designed to track the performance of the home prices over a specific period of time. Specifically, UMM and DMM were designed so that each fund had a net asset value of $25/share based on the reading of the S&P/Case Shiller 10 index as of December 31, 2008.

The funds are designed to "expire" on Nov. 25, 2014, at which point investors will receive a payment based on 300% of the change in the S&P Case-Shiller index from Dec. 31, 2008 through Aug. 31, 2014. (The end payout will be based on the August 2014 rather than the November reading because the indexes are published with a two-month lag.)

When the funds launch tomorrow, the price of each security should tell us how much investors expect home prices to change between Dec. 31, 2008 and Aug. 31, 2014. There is no indication yet of where the funds will be priced at the opening bell.

Masucci said that MacroShares intends to launch a new version of the home price ETFs every year, so that investors can pick and choose their favorite five-year holding window. The company also plans to launch ETFs tied to individual metropolitan areas.

Masucci said that commercial real estate applications are under consideration as well.

Where should UMM and DMM trade between now and November 2014? Simple: They should trade based on where investors expect the index to be on Aug. 31, 2014.




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