Monday, January 25, 2010

The Most Over-Hyped Housing ETFs

While everyone is debating when home prices will bottom, June last year, MacroMarkets LLC (co-founded by Robert Shiller) launched MacroShares which allowed investors to make a direct bet on housing. MacroShares Major Metro Housing Up (UMM), and MacroShares Major Metro Housing Down (DMM) were possibly the most over-hyped housing ETFs ever introduced. In fact, they aren't even ETFs, because it doesn’t hold an underlying basket of houses. Instead, it holds Treasury securities and cash, and shift assets according to the movement of the underlying indexes.

The benchmark index is the S&P Case Shiller Composite-10, an index comprised of real estate sales from San Diego, Los Angeles, San Francisco, Las Vegas, Denver, Chicago, Boston, New York, Washington DC, and Miami. Those 10 cities comprise about 30% of all the real estate transactions in the US. UMM and DMM were designed to deliver 300% of upward and downward movements of the S&P/Case Shiller Home Price Composite-10 Index, and was supposed to expire by November 25, 2014. Unfortunately, the MacroShares UMM and DMM did not track the Case-Shiller index they were supposed to follow, never attracted significant assets, and were liquidated in December 28th, 2009. Robert Shiller admitted it was a mistake and intends to try again.

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