VNQI Vanguard Global ex US Real Estate

Although bond yields have started to creep up over the past few weeks, payouts are still quite low across the curve. The ten year note is still seeing payouts well below 2.5%, barely beating out the S&P 500’s yield in the process, leaving many investors heavily exposure to high yield stocks for current income needs.

As a result, investment in products targeting traditional high yield sectors, such as REITs, continues to remain high, even despite the lackluster performance of the real estate market as of late. Given this interest, investors shouldn’t be surprised to read that UBS has continued its product development in the space, launching a brand new leveraged real estate ETN to investors (see BDCL: Yield King Of Leveraged ETFs).

The new note, the International Real Estate Securities ETN (RWXL) looks to offer investors 2x monthly resetting exposure to a group of international real estate companies from around the world. The product anticipates paying out roughly 7.6% a year to investors while charging 0.6% a year in fees (read Understanding Leveraged ETFs).

Investors should also note that the product is structured as an ETN which means that investors do experience the credit risk of UBS when buying the note. However, this also means that there is no tracking error and that the investment will follow the index perfectly, since it doesn’t actually buy or sell securities in the benchmark.

RWLX In Focus

In terms of the index’s top components, the basket is dominated by developed markets in the Asia-Pacific region. Australia and Japan each account for 17% of the fund, while the UK, Hong Kong, and Canada round out the top five with about 10% each as well. Additionally, investors should be aware that the benchmark also does include some small exposure to emerging markets, with nations such as Brazil, the Philippines, South Africa, and Malaysia all receiving allocations.

In terms of individual allocations, the product is pretty well spread out; just 38% of assets go to the top ten holdings and no one security makes up more than 6.5% of the note. In fact, the top three are also spread out from a geographic perspective as well, as Westfield Group, Unibail-Rodamco, and Brookfield Asset Management, take the top spots representing, respectively, Australia, France, and Canada (see Canadian Equity ETFs Worth A Look).

Real Estate ETF Competition

In terms of competition, RWXL has plenty, as the international real estate market is growing increasingly popular among investors from both a price appreciation and diversification perspective. The biggest competition looks to come from the several international real estate funds on the market including RWO, RWX, VNQI, and IFGL.

These funds pretty much all see trading volumes and assets under management that dwarf the recently launched RWXL (except for RWO) by a pretty wide margin. Additionally, all of the funds generally have a much lower expense ratio than UBS’ entrant, suggesting that total costs are likely to be higher in RWXL (read Ten Best New ETFs Of 2011).

Yet with that being said, RWXL, thanks to its leveraged structure, looks to pay out far more in yield than its counterparts, generally by a wide margin. Thanks to this, if investors can stomach the higher volatility that comes with the 2x structure and the lower trading volumes in the note, this ETN could be an excellent choice for investors seeking high payouts and greater exposure to the international real estate sector.

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