Hedging Using Residential Real Estate Exchange Traded Securities (DMM, UMM)

Ever wish with just a click of the mouse you can hedge your entire equity stake in your home? How about no matter what the real estate market does in the next 5 or 10 years, down another 30% or up 50%, you would be largely unaffected and could sell your home confidently.

Well if these options sound intriguing read on. Earlier this summer Macro Shares launched 2 residential real estate exchange traded securities, which are set up to track the performance of the S&P/Case-Shiller Composite-10 Home Price Index. This composite index tracks residential real estate prices in 10 major US housing markets. So if the index (and residential real estate) goes up, (NYSE: UMM (or Housing Up) would increase in value, and the opposite is true with (NYSE: DMM) (or Housing Down).

The exact mechanisms of these two mirrored securities are quite complicated so a long and hard read of the prospectus should be undertaken before actually investing. Also, in the couple months they have traded, they have both been very volatile. UMM for instance has fluctuated between $13 and $28. A large contributor to this volatility is the 3x leverage built in to the securities. This is an attempt to mirror the leverage one takes on to acquire a home.

I will be tracking the securities over the next year to see how UMM and DMM trade and if they are a worthwhile addition to a well diversified portfolio or a true real estate hedge.