Requiem for a Failed Product: The Death of the Housing ETFs

I never give any kind of investing advice or tips on this site but in cases of extreme absurdity, I’ve been known to vent about a product that I felt could be particularly dicey or dangerous for investors.

One such instance was upon the launch of UMM and DMM, the Macroshares Case-Shiller Major Metro Housing ETFs that were designed to allow investors to bet on or against national home prices.

In a screed back in July of 2009, I let loose on this misguided attempt to attract casino capital to an investment product that made absolutely no sense structurally or thematically.  These products, as created, were not a hedge against a homeowner’s own house, nor were they particularly robust enough to work as trading vehicles.

Here’s what I said at the time:

Why am I so angered by the fact that these Frankenstein creations were permitted to slither out of the freakshow tent they belong under?

How about these factors for a start:

Lack of serious price discovery?  Check.

Lack of actual underlying real estate holdings?  Check.

1.25% expense ratio?  Check.

Disclaimers in the prospectus that absolve these instruments of any responsibility for not being able to perform the way they are supposed to?  Check.

The good news is that both UMM and DMM (aka Up and Down) were quietly shut down at the end of last year.  I would congratulate MacroMarkets (the funds’ creator) for doing the right thing, but upon further investigation, it turns out that there was a clause that required the funds to manage a minimum amount of capital to continue trading, which they could not raise.

I’m happy to report that it does not appear damage was caused to investors via any kind of collapse.  The funds operated as advertised from what I can tell, so I suppose we can at least credit the fund company for that much.

I hope other fund companies and investors in general will look at this example of an overly-exotic product and think twice before throwing money at the next half-baked fund.

Sources:

The Two Horsemen of the ETF Apocalypse (TRB)

Two Housing Index ETFs Shut Down (TheStreet.com)