July 1, 2009

Two MacroShares Trusts Begin Trading, Both Use Leverage to Track U.S. Housing Markets

The new trusts are the first exchange-traded products (ETPs) that aim to give investors exposure to residential real estate in key cities within the U.S. housing market.

After months of anticipation and behind the scenes maneuvering, the MacroShares Major Metro Housing Down Trust (DMM) and MacroShares Major Metro Housing Up Trust (UMM) are now trading.

The new trusts are the first exchange-traded products (ETPs) that aim to give investors exposure to residential real estate in key cities within the U.S. housing market.

The MacroShares Metro Housing ETPs are based on the S&P/Case-Shiller Composite-10 Home Price Index, a closely watched indicator of U.S. home prices in the 10 largest cities. The index measures single-family housing prices.

Trusts Work in Tandem
Both DMM and UMM are paired trusts that work as follows: When MacroShares Major Metro Housing Up are created, an equal number of MacroShares Major Metro Housing Down are also created. UMM funds are invested in the "Major Metro Housing Up Trust." DMM investor funds are invested in a separate "Major Metro Housing Down Trust".

Both trusts enter into a settlement contract to pledge assets to one another over time, using a predetermined formula. The trusts feature a 3x leverage factor, such that the underlying value of each is intended to track three times the cumulative percentage change, upward or downward, in U.S. single family home prices, as measured by the S&P/Case-Shiller Composite-10 Home Price Index.

The products were developed by Karl Case and Robert Shiller. According to MacroShares, the trusts "provide investors with access to the housing asset class, allowing for leveraged investment in either the upward or downward movement of home prices with no issuer or counterparty credit risk."

DMM began trading on June 30 at about 30.87 and ended the week at about 31.66. UMM started trading on June 30 at roughly 20.03 and finished the week at about 18.80.

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