Why Robert Shiller's New Housing ETFs Are Dangerous


On June 30th 2009, MacroMarkets LLC (co-founded by Robert Shiller) launched two ETFs that purport to provide a 3X return and inverse return to the S&P/ Case-Shiller Composite-10 Home Price Index.

Here are the ticker symbols:

MacroShares Major Metro Housing Up (UMM)


MacroShares Major Metro Housing Down (DMM)

AKA Dumb and Dumber, AKA The Two Horsemen of the ETF Apocalypse, AKA Little Boy and Fat Man (yes, a Hiroshima/ Nagasaki reference).

I’m in a rage right now over the launch of these two products and I hope those financial journalists who are able/ willing to spend the time accurately dissecting these two things will do so to prevent the needless losses that I believe both will generate at the expense of naive investors. 

Why am I so angered?

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.

How do these instruments work, exactly?  Here’s David Van Knapp‘s explanation on Seeking Alpha:

Unlike most ETFs, Up and Down do not invest directly in a relevant underlying asset such as stocks, bonds, or houses. Instead, they invest in short-term Treasury securities and overnight repurchase agreements. The paired trusts have a binding agreement to pledge assets to one another over time, according to a predetermined formula that is driven by changes in the housing index, based on the movement of housing prices. This transfer of value back and forth gives “investors” exposure to the direction of U.S. home prices.

The structure resembles a see-saw as the assets are shuffled between the paired trusts. Because of the pairing requirement, an equal number of shares for each fund will be created. Because of the leverage factor, the Up and Down ETFs will experience changes of 3x the changes in the S&P/Case-Shiller Composite-10 Home Price Index.

Here’s a snapshot of how Dumb and Dumber are performing today, as of this 2:15 writing on July 7th:

DMM up 9.94% on the day

UMM down 20% on the day

So had you shorted both at the close yesterday, you’d be up 10% right now on the day.  Inverse my foot.  This is garbage and someone should be held accountable.

MacroMarkets has tried this type of thing already and I offer condolences for the investors who got involved with some of their other failed products.

From an otherwise-flattering portrait of Shiller in Fortune Magazine today:

MacroMarkets has been down this road before. In 2006 it offered MacroShares that tracked the rise and fall in oil prices. But in 2008, after oil prices soared from $88 to $145 in only five months — an event that the MacroShares were not designed to handle — MacroMarkets wound them down. The company introduced another pair of oil MacroShares in July 2008, but they attracted few traders and were liquidated in June.


Shiller believes in the concept of being able to hedge everything in life, but many times, the execution of such an idealistic goal falls far short of the intention.  In this case, the execution may subvert the intention as these wrecking balls cut through the middle-class investors they are being marketed to.


ETFs That Bet on Housing (Seeking Alpha)

MacroMarkets LLC Official Website

Don’t Blame Bob Shiller (Fortune)

Full disclosure:  My commentary above is not to be construed as investment advice or an invitation to buy or sell any securities.  Never trade based on anything you read here.  Especially in this particular diatribe.  The opinions expressed here are my own and not those of any other entity.  For a full disclaimer, please visit my Terms & Conditions page.

(This post is an excerpt of a longer post that appeared at The Reformed Broker)

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