Within the last week, investors were introduced to a slew of new ETF products, including a suite of “FactorSelect” ETFs from iShares and a new leveraged real estate fund from UBS.
ETRACS Monthly Pay 2xLeveraged MSCI US REIT Index ETN (LRET)
The ETRACS Monthly Pay 2xLeveraged MSCI US REIT Index ETN (LRET ) began trading on May 5, and is the third leveraged real estate product offering from UBS. The fund offers 2x exposure to the MSCI US REIT Index, which is comprised of U.S.-listed equity REIT securities, including residential, retail, and other types of REITs.
LRET features a variable monthly coupon linked to 2x the cash distribution of the index constituents; currently the 2x Index Yield is 7.45%. Investors should also note that leverage is reset monthly, not daily.
The fund’s underlying portfolio offers exposure to 140 individual REITs. The top three holdings and respective allocations are:
- Simon Property Group (SPG) – 8.48%
- Public Storage (PSA) – 4.04%
- Health Care Reit Inc (HCN) – 3.74%
LRET charges an expense ratio of 0.85%, which is significantly more expensive than its sister fund the ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (MORL ), which offers 2x exposure to global REITs and charges only 0.40%.
iShares Debuts Suite of FactorSelect ETFs
On April 28, iShares launched a suite of five “FactorSelect” ETFs—all of which track indexes designed to target securities that have favorable exposure to target style factors, including value, quality, momentum, and low size. In addition, these FactorSelect indexes are designed to maximize exposure to factors that have historically outperformed the broad market, while maintaining a similar level of market risk:
- FactorSelect MSCI USA ETF (LRGF ): This fund targets U.S. large and mid-cap stocks that exhibit the style factors highlighted above. LRGF’s expense ratio is 0.35%.
- FactorSelect MSCI USA Small-Cap ETF (SMLF ): This ETF focuses on the small-cap segment of the U.S. equity market which meets the FactorSelect criteria. The fund charges an expense ratio of 0.50%.
- FactorSelect MSCI International ETF (INTF ): This fund offers investors exposure to large and mid-cap companies from global developed markets outside of the U.S., which exhibit the target style factors. INTF charges an expense ratio of 0.45%.
- FactorSelect MSCI Intl Small-Cap ETF (ISCF ): This fund also focuses on developed equity markets outside of the U.S., but targets only small-cap companies. ISCF charges an expense ratio of 0.60%.
- FactorSelect MSCI Global ETF (ACWF ): This ETF provides exposure to large and mid-cap equities from both developed and emerging markets (including the U.S.). The fund charges an expense ratio of 0.50%.
Commenting on the new funds, Mark Carver, Head of US iShares Equity Smart Beta, stated: “Research has shown that stocks reflecting certain factors have, over time, provided a higher return than the overall market. We’re excited to introduce this new iShares FactorSelect ETF suite which may give investors the opportunity to capture the performance and diversification benefits offered by these four leading factors, in a cost-efficient and transparent way. With the launch of this new suite of ETFs, investors now have the added flexibility to implement a multi-factor strategy, or if they prefer, express a view on a single factor using iShares Smart Beta funds.”
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Disclosure: No positions at time of writing.