Tuesday, May 19, 2009

When Will The MacroShares Housing ETF's UMM and DMM Trade?

Posted by CavemanForecaster at 12:27 PM
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So the original plan was that the MacroShares Major Market ETF's UMM and DMM should have been trading by now. But they are not unfortunately.

The last press release by the company was this on May 5th.

This press release says that they need more time for the IPO auction. From the article:

The launch of the first financial instrument for betting on U.S. home prices was delayed on Tuesday as the company behind the product seeks more and bigger institutional investors. MacroMarkets LLC declined to disclose the value of the bids received so far for the widely anticipated initial public offering of two linked trusts through which investors can bet that home prices will either rise or fall. "There's a lot of interest, but we needed to give people more time," said Robert Shiller.

But even with the extension of the IPO bidding process, I thought they would be trading by now.

So I talked with someone at MacroMarkets this morning and basically they said that they were still trying to secure adequate seed capital for the UMM and DMM funds. They have an SEC filing waiting to get approval for the seed capital process and that they expected it to be trading by the end of the month.

So we will see. This is disappointing and I am not sure how to read it. The negative read would be there is not enough interest and that may not bode well for this product when it (and in worse case if) hits the market. The positive read would be like MacroShares says in the article. That there is strong interest but the investors need more time to further evaluate and properly price their bids.
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4 comments:

  1. The imbalance is similar to the problem Claymore had with the oil up/down contracts. This case is even more difficult because there is a bit of a catch-22: large/commercial traders do not seem very interested in the housing futures, and while retail traders might want to trade the ETFs, the futures market isn't necessarily deep enough for the market maker to hedge. At some point the market markers will not want to accumulate risk and the shares' tracking error will increase.
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  2. Jason,
    Good insight. I hope ultimately they find a way to balance the supply/demand and risk on these so they can trade. My intent was to wait and see once they start trading and see how far they get from real value.
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  3. I don't think DMM / UMM will ever matieralize because leveraged ETF's have wiped people out - both sides.

    Look at DIG / DUG and FAS / FAZ.

    If they do come to market, just short both of them on the spikes they'll no doubt have and then ride them to single digits as the decay and price tracking error keeps downward pressure on them both.

    They'll be a losing proposition for "investors" - IMHO.....

    Good luck....
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  4. Anon,

    UMM and DMM are different in methodology than other leveraged ETF's like DIG/DUG. Primarily is that UMM and DMM are pegged to 3x a cumulative gain over time, not a 3x of a daily change. I think the 3x of a daily change has really skewed the other leveraged ETF's when the actual daily movement in the 3x ETF is not exactly 3x the change in the underlying. Those small differences compounded over time really add up and decay over time as you mention. Because UMM and DMM are 3x a cumulative change over a long period they shouldn't see the same decay.

    But we will see, you may be correct in that they might never trade if they can't get sufficient capital to launch them.
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