2 New Homebuilder ETNs

UBS released two new ETNs last week, adding to its huge list of exchange-traded securities. The ETRACS ISE Exclusively Homebuilders ETN HOMX and the ETRACS Monthly Reset 2xLeveraged ISE Exclusively HOML provide direct exposure to homebuilding companies through the ISE Exclusively Homebuilders Total Return Index.

ETN vs. ETF

The main difference between an ETN and an ETF is that an ETF actually owns the companies in the index that it tracks and will reallocate when changes are made to the index holdings. An ETN also attempts to track an index; however, it does not actually own the stocks in the index. In lieu of owning the stocks, an ETN will use derivatives and other investment vehicles to track the index.

HOMX offers investors a regular non-leveraged ETN, while HOML tracks the same index with a 2-to-1-leveraged exposure. HOML is, therefore, an ETN that is linked to the monthly compounded 2x leveraged performance of the underlying index.

Entrance Into Sector

UBS's new ETNs come at a time where positive home sales, home construction and increasing home values have helped the housing market continue to pull itself off the floor it hit a few years ago. The trend is far from robust, but as long as the environment for a better housing market continues, it should benefit the homebuilders directly.

Related Link: Keefe, Bruyette & Woods Raises 4 Homebuilder Price Targets

ISE Exclusively Homebuilders Total Return Index

The index that the two ETN's track is composed of 21 of the largest U.S. companies involved solely in the development and construction of homes and communities.

The top weighted companies in the index are:

• Lennar Corporation LEN at 10.7 percent
• D.R. Horton, Inc. DHI making up 10.1 percent
• Toll Brothers Inc TOL totaling 8.7 percent
• PulteGroup, Inc. PHM coming in at 7.7 percent

The two new ETNs will have to deal with a lot of competition in the marketplace with the iShares Dow Jones US Home Const. (ETF) ITB and the SPDR S&P Homebuilders (ETF) XHB already available.