It’s been a little more than a month since MacroShares jumped back into the ETF game with the introduction of the Major Metro Housing Up (UMM) and Major Metro Housing Down (DMM) exchange-traded products. Shortly before launching the Up/Down housing funds, MacroShares had pulled the plug on similar paired funds offering exposure to crude oil prices – MacroShares $100 Oil Up (UOY) and $100 Oil Down (DOY) – due to the inability to attract a certain level of assets. UOY and DOY were actually the reincarnation of similar products that were initially offered in 2008 but closed down when oil prices skyrocketed, causing assets to shift completely into the up fund. So how are the new MacroShares products faring this time around?
Unique ETP Model
It’s safe to say the the current MacroShares products are unlike any other exchange-traded products on the market today. The funds are created in pairs, meaning that when DMM shares are issued, an equal number of UMM shares are issued as well. The assets of both funds are invested in short-term Treasury Bills. The two trusts are entered into a settlement contract, agreeing to pledge assets to one another over time according to a predetermined formula driven by changes in a reference index. In this case, the reference index is the S&P Case-Shiller Composite-10 Home Price Index, a widely-followed indicator of residential home prices in ten major U.S. cities. So the products are net-zero – if home prices rise, generally funds will flow from DMM to UMM, and vice versa.
A few more unique characteristics about these paired products:
- MacroShares funds have a maturity date of November 25, 2014, meaning that prices of the funds may not move exactly in line with the underlying index, but rather reflect expectations beyond the short-term
- The amount to be transferred between the trusts is based on three times the change in the Case-Shiller Index, meaning that if the index rises 10% at maturity from its level at inception, the down fund would transfer 30% of its assets to the up fund
- UMM and DMM are perhaps the purest play on U.S. residential housing markets, although the iShares FTSE NAREIT Residential Index Fund (REZ) focuses on residential real estate as well.
Since neither of the first two MacroShares offerings came close to reaching maturity, so it will be interesting to keep tabs on the third generation of funds. As of August 7, here’s a few quick stats on UMM and DMM:
|Trust||Ticker||Market Cap||Gain/Loss Since Inception||Avg. Daily Volume||Price|
|Major Metro Housing Down||DMM||$12.3 million||-17.3%||14,501||$25.55|
|Major Metro Housing Up||UMM||$11.5 million||22.2%||10,145||$23.95|
After a planned Dutch-auction IPO failed earlier this year, the company pursued a more traditional market-maker driven launch. As the above table indicates, the amount of assets in each trust is approximately equal, meaning that neither fund is in danger of being wiped out (the phenomenon that doomed the first generation of MacroShares products). And while the market cap and volume numbers aren’t huge, they aren’t overly depressing either, indicating that these products are getting a fair amount of attention from investors despite a history of setbacks with similar securities.
Whether UMM and DMM last until maturity is still anyone’s guess, and the future of demand for up/down paired products remains to be seen as well.
Disclosure: No positions at time of writing.