Tag Archives: ubs

Luxoft Hurt By Deutsche Bank, FX; Stock Plunges But CEO Holds Firm

Already down 28% from Feb. 1 before the open Friday, Luxoft Holding stock plunged as much as 16% in the stock market today before regaining some of its losses, with shares down 4.5%, near 53, in afternoon trading. Late Thursday, the company delivered Q3 earnings and gave full-year guidance below Wall Street estimates. A tech-outsourcing firm primarily targeting financial services IT and automotive tech markets, Switzerland-based Luxoft said EPS minus items fell 11% year over year to 72 cents, on revenue that grew 18% to $172 million, for the quarter ended Dec. 31. Analysts polled by Thomson Reuters had expected 80 cents on $175 million. Luxoft stock is now 34% below its all-time high of 80.64 set just Dec. 8. Luxoft went public in June 2013 at 17. In the company’s earnings conference call early Friday, CEO Dmitry Loschin said Luxoft faced tough comps from a year earlier, “material” foreign-exchange headwinds, and offered “discounts to some of our key customers.” He said the discounts were enabled by “our strong performance during the first six months of the year” before uttering Deutsche Bank ( DB ), which he eventually explained. The bad news: Frankfurt-based Deutsche, Luxoft’s No. 1 client, was just coming off another big quarterly loss, prompting layoffs and a five-year restructuring program. The good news: Luxoft just signed a five-year master services agreement with Deutsche, expiring in December 2020, and made it to Deutsche’s shrinking preferred-vendor list. “With that, we believe Deutsche Bank . . . will provide a stable level of revenues for the next 12-14 months for Luxoft, but we are not forecasting significant growth,” Loschin told analysts. Asked by an JPMorgan analyst Alexey Gogolev if Deutsche would require further discounts, Loschin responded: “For sure we don’t expect every quarter to provide discounts to them. Our expectations for the next quarters is to be flat, with some variation up and down. . . . Taking into account the bank’s position today, there are certain risks. They need to change their IT. This is a good year to make IT changes.” Luxoft said revenue tied to No. 2 client, UBS ( UBS ) rose 36%, and “now comprises 21.5% of our revenues,” said Loschin. “We are very optimistic regarding the upcoming work pipeline. . . . “Further, we have been successfully ramping up other major accounts in this vertical, such as Citigroup ( C ) and Credit Suisse ( CS ). The latter is going through many interesting, for us, transformational initiatives. ” For the first nine months of its fiscal year, financial services outsourcing revenue rose nearly 29% to nearly 69% of Luxoft’s total sales, said Chief Financial Officer Roman Yakushkin. Revenue from automotive and transportation outsourcing — in which car-audio maker Harman International Industries ( HAR ) ranks as its top sector client and No. 3 customer overall — rose 39% to 11.6% of total sales. Technology outsourcing rose 36% to 6.9% of sales. Telecom rose 10.5% to 5.7% of sales. Travel and aviation declined 15% to 4.5% of revenue. And energy increased 5.2% to 2% of sales. UBS analyst Steven Milunovich, in a research note issued Friday, reiterated his buy rating on Luxoft stock, with an 84 price target. “The stock is already down . . . on concerns of exposure to DB, UBS, and Credit Suisse,” he said. “However, the slowdown in constant currency growth, apparently largely due to DB, might cause further weakness. We believe strong performance in other verticals might be sufficient to limit downside, though, and the longer-term outlook remains bright.”

Build Your Own Leveraged ETF (ETRACS Edition)

Summary A previous article showed that the ETRACS 2x ETNs did not inexorably decay in value even over several years. Other authors have investigated the idea of using leveraged funds to build your own ETF. The application of this strategy to the ETRACS 2x ETNs are investigated, revealing the potential for additional yield. Introduction The ETRACS line-up of ETNs issued by UBS (NYSE: UBS ) provides investors with exposure to a broad range of investment classes. A number of the ETRACS ETNs are 2x leveraged, which means that they seek to return twice the total return of the underlying index, minus fees. This allows the ETNs to offer alluring headline yields, making them attractive for income investors. Additionally, some of these funds pay monthly distributions, although these can be lumpy. A recent article provides an overview of the types, yields and expense ratios of these 2x leveraged ETNs. An interesting feature of the 2X leveraged ETNs is that their leverage resets monthly rather than daily, which is the norm for most leveraged funds on the market. It is known that decay or slippage in leveraged funds will occur when the underlying index is volatile with no net change over a period of time. By resetting monthly rather than daily, this decay can be somewhat mitigated. An article by Seeking Alpha author Dane Van Domelen addresses the decay issue mathematically and shows that in most cases, the decay is not as serious as is often thought. However, this leverage does not come without costs. There is the management cost associated with providing the ETN, as well as a finance cost associated with maintaining the 2x leverage. Finally, it should be noted that investors in ETNs are subject to credit risk from the fund sponsor, in this case UBS. If UBS were to go bankrupt, the ETNs will likely become worthless. However, Professor Lance Brofman has argued that the risk of ETN investors losing money due to UBS going bankrupt is, barring an overnight collapse, minimal because the notes can always be redeemed at net asset value. I recently studied the performance of several of the 2x leveraged ETNs and found that, in general, the 2x ETNs fulfilled their objectives and also outperformed the corresponding (hypothetical) daily-reset 2x ETNs. This suggests that, over the last few years at least, that the 2x ETNs have been suitable (insofar as them being able to meet their objectives vis-a-vis their 1x counterparts) long-term instruments for the leverage-seeking investor. Just to make this point crystal clear, the 2x ETRACS ETNs have allowed aggressive investors to obtain 2x participation in a variety of asset classes in an efficient and stable manner – both to the upside and to the downside – I am not making specific recommendations as to whether the asset classes themselves (e.g. mREITs, MLPs, BDCs, and CEFs, just to name a few of the asset types covered by the ETRACS) are suitable as long-term investments. Building your own ETF In another article entitled ” Build Your Own Leveraged ETF “, Dane Van Domelen explores the possibility of combining leveraged ETFs with cash or other funds for various purposes. For example, Dane posited that a one-third ProShares UltraPro S&P 500 ETF (NYSEARCA: UPRO ), a 3x leveraged version of the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ), two-thirds cash portfolio has virtually the same properties as a 100% S&P 500 portfolio (with periodic rebalancing), but allows you to hold a lot of cash: An interesting special case is where you put one-third of your money in UPRO and two-thirds in cash. At the onset, this portfolio would behave almost exactly as if you had all of your money in the S&P 500. UPRO’s expense ratio should result in somewhat diminished returns, but not much. And it might be worth it to free up two-thirds of your money, for emergencies and so forth. UBS 2x ETN expert Lance Brofman has also considered the same idea : If this hypothetical investor were thinking of either investing $1,000 of his $10,000 in the UBS ETRACS 2X Leveraged Long Wells Fargo Business Development Company ETN ( BDCL) and keeping $9,000 in the money market fund, or investing $2,000 of his $10,000 in the UBS ETRACS Wells Fargo Business Development Company ETN ( BDCS) and keeping $8,000 in the money market fund, either choice would entail the same amount of risk and potential capital gain. This is because BDCL, being 2X leveraged, would be expected to move either way twice as much as a basket of Business Development Companies, while BDCS would move in line with a basket of Business Development Companies. This article seeks to analyze whether it is possible to “build your own ETF” with the suite of UBS 2x leveraged ETNs, by applying the strategy described above by Dane Van Domelen and Lance Brofman. Interestingly, the analysis reveals the potential to add on additional yield to your portfolio. Considering fees The fee required to maintain the 2x leverage of the ETRACS 2x ETNs is based on the 3-month LIBOR, which currently stands at 0.33%. This is added to a variable financing spread (0.40-1.00%) to generate a total financing rate that is passed on to investors. This total financing rate of 0.77-1.33% is much lower than is available for all but the wealthiest of individual investors. Lance Brofman writes : Many retail investors cannot borrow at interest rates low enough to make buying BDCS on margin a better proposition than buying BDCL. This means that from an interest point of view, it would usually be better to buy the leveraged fund than to try and replicate it yourself with a margin loan from your broker. Applying the strategy However, what if the investor wasn’t interested in using leverage in the first place? Can he still make use of the low financing rates charged by the ETRACS 2x ETNs? To explore this, let’s try to apply the strategy described above by Dane Van Domelen and Lance Brofman, which basically entails replicating a 100% investment in a 1x fund with a 50% investment in the corresponding 2x fund and a 50% allocation to cash or a risk-free asset. The following illustrates such an example. Example Let’s say that you had $10K invested in the SPDR Dividend ETF (NYSEARCA: SDY ). SDY charges 0.35% in expenses, which comes out to $35 per year. You could replicate that investment with $5K in the UBS ETRACS Monthly Pay 2x Leveraged S&P Dividend ETN (NYSEARCA: SDYL ), leaving yourself with $5K in cash. SDYL charges 1.01% in total expenses, which on $5K comes out to $50.50. In other words, you’d be paying an extra $15.50 per year if you decided to invest $5K in SDYL compared to $10K in SDY. But wait! You have an extra $5K in cash left over. If you can use that $5K to earn $15.50 per year, corresponding to a rate of return [RR] of 0.31%, you can break even. With any higher rate of return, you would benefit from using the leveraged ETN and investing the rest of your cash. At first glance, it seems that 0.31% is a ridiculously low hurdle to surpass, suggesting that one would nearly always benefit from using the leveraged ETNs and investing the rest of the cash. However, one also needs to consider the risk of the invested cash portion. To mimic, as closely as possible, the risk of the original scenario (i.e. $10K invested in SDY), the $5K cash left over after investing $5K in SDYL should be invested in as risk-free of an asset as possible. Bankrate.com shows that 1.30% 1-year CDs and 1.25% savings accounts are currently available. These investments are insured by the FDIC, and can be considered to be nearly risk-free. Using the above example, investing $5K at 1.30% for one year yields you $65.00. After subtracting the additional $15.5 required for the additional expenses of SDYL ($50.50) vs. SDY ($35), you’d gain $49.50, or an additional 0.495%, from using this strategy! Results The following table shows a list of 2x leveraged ETNs, their corresponding 1x fund, and their respective total expense ratios [TER]. Also shown is the rate of return [RR] required on the risk-free portion to break-even, as well as additional yield that you would be able to obtain on the entire portfolio had the risk-free portion been left in cash paying 0%, a savings account paying 1.25% or a 1-year CD paying 1.30%. A negative number indicates that this strategy would lose money relative to investing the whole portion in the 1x fund. The funds are arranged in descending order of required RR on the risk-free portion. Please see my previous article if further information is required regarding these 2x ETNs. Note that some funds such as the ETRACS Monthly Pay 2xLeveraged US High Dividend Low Volatility ETN (NYSEARCA: HDLV ) and the ETRACS Monthly Pay 2xLeveraged U.S. Small Cap High Dividend ETN (NYSEARCA: SMHD ) so not have corresponding 1x counterparts, so are excluded from this analysis. Ticker TER Ticker TER Required RR Cash (0%) Savings (1.25%) 1-year CD (1.30%) ETRACS Monthly Pay 2xLeveraged MSCI US REIT Index ETN (NYSEARCA: LRET ) 1.96% Vanguard REIT Index ETF (NYSEARCA: VNQ ) 0.10% 1.76% -0.88% -0.26% -0.23% UBS ETRACS Monthly Reset 2xLeveraged S&P 500 total Return ETN (NYSEARCA: SPLX ) 1.56% SPY 0.09% 1.38% -0.69% -0.07% -0.04% ETRACS Monthly Reset 2xLeveraged ISE Exclusively Homebuilders ETN (NYSEARCA: HOML ) 1.96% ETRACS ISE Exclusively Homebuilders ETN (NYSEARCA: HOMX ) 0.40% 1.16% -0.58% 0.05% 0.07% ETRACS 2xMonthly Leveraged S&P MLP Index ETN (NYSEARCA: MLPV ) 2.26% iPath S&P MLP ETN (NYSEARCA: IMLP ) 0.80% 0.66% -0.33% 0.30% 0.32% SDYL 1.01% SDY 0.35% 0.31% -0.16% 0.47% 0.50% UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN (NYSEARCA: MORL ) 1.11% Market Vectors Mortgage REIT Income ETF (NYSEARCA: MORT ) 0.41% 0.29% -0.15% 0.48% 0.51% UBS ETRACS Monthly Pay 2x Leveraged Dow Jones Select Dividend Index ETN (NYSEARCA: DVYL ) 1.06% iShares Select Dividend ETF (NYSEARCA: DVY ) 0.39% 0.28% -0.14% 0.49% 0.51% UBS ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN (NYSEARCA: CEFL ) 1.21% YieldShares High Income ETF (NYSEARCA: YYY ) 0.50% 0.21% -0.11% 0.52% 0.55% UBS ETRACS Monthly Pay 2X Leveraged Dow Jones International Real Estate ETN (NYSEARCA: RWXL ) 1.31% SPDR Dow Jones International Real Estate ETF (NYSEARCA: RWX ) 0.59% 0.13% -0.07% 0.56% 0.59% UBS ETRACS Monthly Pay 2xLeveraged Wells Fargo MLP Ex – Energy ETN (NYSEARCA: LMLP ) 1.76% UBS ETRACS Wells Fargo MLP Ex-Energy ETN (NYSEARCA: FMLP ) 0.85% 0.06% -0.03% 0.60% 0.62% UBS ETRACS Monthly Pay 2xLeveraged Diversified High Income ETN (NYSEARCA: DVHL ) 1.56% UBS ETRACS Diversified High Income ETN (NYSEARCA: DVHI ) 0.84% -0.12% 0.06% 0.69% 0.71% UBS ETRACS 2x Leveraged Long Alerian MLP Infrastructure Index ETN (NYSEARCA: MLPL ) 1.16% UBS ETRACS Alerian MLP Infrastructure Index ETN (NYSEARCA: MLPI ) 0.85% -0.54% 0.27% 0.90% 0.92% BDCL 1.16% BDCS 0.85% -0.54% 0.27% 0.90% 0.92% From the table above, we can see that the LRET/VNQ combination would be the worst pair to implement this strategy with, as it requires a 1.76% RR to break even. This means that even with a 1-year CD rate of 1.30%, you would be losing -0.23% using this method. This can be attributed to LRET’s exceptionally high expense ratio of 1.96%, and VNQ’s exceptionally low expense ratio of 0.10%, making it highly expensive to replicate 100% VNQ with 50% LRET. At the other end of the spectrum, the BDCL/BDCS combination appears to be the best pair for this strategy. The required RR is negative 0.54%, meaning that even if you left the 50% risk-free portion in cash, you would be gaining 0.27% on your overall portfolio. Investing the risk-free portion is a 1-year CD improves the performance of the portfolio by 0.92%. This can be attributed to BDCL’s below-average expense ratio of 1.16% and BDCS’ above-average expense ratio of 0.85%. The following chart shows the required RR for the 2x funds in order to implement this strategy. The following chart shows the additional yield that can be harvested by investing the 50% risk-free portion in cash (0%), a savings account (1.25%) or a 1-year CD (1.30%) for the respective 2x funds. Risks and limitations The 50% investment in a 2x fund may not correspond exactly to a 100% investment in 1x fund. It may do better or it may do worse. Periodic rebalancing may help, but this would entail additional transaction fees. In the case where the 1x fund is an ETF, you are additionally exposed to the credit risk of UBS when it is substituted for a 2x ETN (see introduction). In the case where the 1x fund is an ETF, the tax treatment may change when it is substituted for a 2x ETN. Savings accounts and CDs are only FDIC-insured up to a certain value (though if we’re worrying about this we have much bigger problems on our hands than the implementation of this strategy!). Conclusion A previous article showed that the ETRACS 2x ETNs did not inexorably decay in value even over several years, suggesting that the funds can function as efficient long-term investments for the leverage-seeking investor. This article shows that an investor not interested in leverage could still potentially benefit from the ETRACS 2x funds by “building his own ETF”. This simply costs of replicating a 100% investment in a 1x fund with a 50% investment in the corresponding 2x fund, and a 50% investment in a risk-free asset. Additional yields of up to 0.92% per year are available using this strategy. Further enhancements in yields can be achieved by investing the 50% into more risky assets such as corporate bonds, although this alters the overall risk-reward dynamics of the strategy.

An Update On UBS’s ETRACS 2X Leveraged ETNs

Summary Since my last article, UBS has launched two more 2X Leveraged ETRACS ETNs. The mid-year spike in interest rates has pulled down many of these income-generating funds to more attractive levels. Relevant data for all of the funds are updated. Introduction In a Mar. 2015 article entitled ” A Quick Overview Of UBS ETRACS 2X Leveraged ETNs “, I gave a brief introduction to the line-up of 2X leveraged ETNs offered by UBS (NYSE: UBS ). These ETNs cover a broad range of investment classes, including traditional equity as well as alternative investment types such as real estate investment trusts [REITs], mortgage REITs [mREITs], master limited partnerships [MLPs], business development companies [BDCs] and closed-end funds [CEFs]. The use of 2X leverage allows these ETNs to offering alluring headline yields. For further general information regarding the pros and cons of leverage, as well as specific risks regarding these ETNs, please see my previous article . New offerings In May 2015, UBS launched the ETRACS Monthly Pay 2xLeveraged MSCI US REIT Index ETN (NYSEARCA: LRET ), an ETN that tracks twice the monthly return of the MSCI US REIT Index (the same index tracked by the giant Vanguard REIT ETF (NYSEARCA: VNQ )). LRET charges 1.96% in total fees (see below for how this is calculated), and sports a headline 2X index yield of 7.45%. In July 2015, UBS launched ETRACS 2xMonthly Leveraged S&P MLP Index ETN (NYSEARCA: MLPV ), which tracks twice the monthly return of the S&P MLP index. MLPV charges 2.26 in total fees, and sports a headline 2X index yield of 12.49%. The funds UBS currently offers fifteen 2X leveraged ETNs. The following table shows the fund name, ticker symbol, 12-month trailing yield, inception date, the corresponding 1X leveraged fund (where available), average trading volume and total expense ratio [TER] of the ETNs. The TERs were obtained from the funds’ pricing supplements and the remaining data are from Morningstar . Where 12-month trailing yields are not available (for more recent launches), the 2X index yield provided by UBS has been presented. UBS engages in the (rather dubious, in my opinion) practice of hiding their financing spread within their pricing supplement, which makes their headline management fee (known as “tracking rate”) look lower. For example, the UBS ETRACS Monthly Pay 2x Leveraged S&P Dividend ETN (NYSEARCA: SDYL ) has an annual tracking rate of 0.30%, a figure that is displayed prominently on the fund’s website, but you have to dig into the pricing supplement to see that you are being charged an additional 0.40% financing spread, which means that the total financing rate will be 0.40% + 3-month LIBOR (currently 0.31%). Adding all three fees together gives a total expense ratio of 0.30% (tracking rate) + 0.40% (financing spread) + 0.31% (3-month LIBOR) = 1.01%. Since LIBOR is subject to change, in my previous article I excluded LIBOR when quoting the TER of the funds (while reminding readers to be aware of this expense). However, in this article I have decided to quote TER to be inclusive of LIBOR (currently 0.31%) to give investors a better idea of the total fees that are currently paying. Additionally, note that because the funds are 2X leveraged, one should divide the TER by two if one wish to compare the expense ratios with unleveraged funds. I have also rearranged the categories of the funds somewhat compared to the last article. All broad equity, dividend equity, small-cap equity and homebuilder equity ETNs are grouped under “Equity”. The “Alternative Equity” class includes MLP, REIT, mREIT, and BDC funds. “Balanced” includes CEF and multi-asset funds. Fund Ticker Yield Inception Volume TER* 1X Alternative Equity Monthly Reset 2xLeveraged S&P 500 Total Return ETN (NYSEARCA: SPLX ) N/A(1) 3/2014 9K 1.56% SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) Monthly Pay 2xLeveraged S&P Dividend ETN SDYL 5.43% 5/2012 1.8K 1.01% SPDR Dividend ETF (NYSEARCA: SDY ) Monthly Pay 2xLeveraged Dow Jones Select Dividend Index ETN (NYSEARCA: DVYL ) 8.09% 5/2012 8K 1.06% iShares Select Dividend ETF (NYSEARCA: DVY ) Monthly Pay 2xLeveraged US High Dividend Low Volatility ETN (NYSEARCA: HDLV ) 10.02%^ 9/2014 15K 1.76% Monthly Pay 2xLeveraged US Small Cap High Dividend ETN (NYSEARCA: SMHD ) 17.70%^ 3/2015 23K 1.96% Monthly Reset 2xLeveraged ISE Exclusively Homebuilders ETN (NYSEARCA: HOML ) N/A(1) 3/2015 23K 1.96% ISE Exclusively Homebuilders ETN (NYSEARCA: HOMX ) Alternative Equity Monthly Pay 2xLeveraged Wells Fargo MLP Ex-Energy ETN (NYSEARCA: LMLP ) 13.56% 6/2014 23K 1.76% Wells Fargo MLP Ex-Energy ETN (NYSEARCA: FMLP ) Monthly Pay 2xLeveraged MSCI US REIT Index ETN LRET 7.45%^ 5/2015 63K 1.96% Vanguard REIT ETF [VNQ] Monthly Pay 2xLeveraged Mortgage REIT ETN (NYSEARCA: MORL ) 26.52% 10/2012 289K 1.11% Market Vectors Mortgage REIT Income ETF (NYSEARCA: MORT ) Monthly Pay 2xLeveraged Dow Jones International Real Estate ETN (NYSEARCA: RWXL ) 4.99% 3/2012 24K 1.31% SPDR Dow Jones International Real Estate ETF (NYSEARCA: RWX ) 2xMonthly Leveraged Long Alerian MLP Infrastructure Index ETN (NYSEARCA: MLPL ) 15.02% 7/2010 103K 1.16% Alerian MLP Infrastructure Index ETN (NYSEARCA: MLPI ) & ALPS Alerian MLP ETF (NYSEARCA: AMLP ) 2xMonthly Leveraged S&P MLP Index ETN MLPV 12.49%^ 7/2015 1.6K 2.26% iPath S&P MLP ETN (NYSEARCA: IMLP ) 2xLeveraged Long Wells Fargo Business Development Company Index ETN (NYSEARCA: BDCL ) 20.24% 5/2011 164K 1.16% Wells Fargo Business Development Company ETN (NYSEARCA: BDCS ) Balanced Monthly Pay 2xLeveraged Closed-End Fund ETN (NYSEARCA: CEFL ) 22.04% 12/2013 150K 1.21% YieldShares High Income ETF (NYSEARCA: YYY ) Monthly Pay 2xLeveraged Diversified High Income ETN (NYSEARCA: DVHL ) 16.56% 11/2013 15K 1.56% Diversified High Income ETN (NYSEARCA: DVHI ) * Includes 3-month LIBOR (currently 0.31%). ^ 2X index yield provided by fund sponsor. Actual yield may be different. (1) No dividends are paid out as this is a total return fund. Recent performance A chart of the total return performance of the 6 equity-based 2X leveraged ETNs (excluding SMHD, which for some reason doesn’t show on YCharts) since my last article is presented below. SPLX Total Return Price data by YCharts The graph above shows that the 2X homebuilder ETN HOML has outperformed with a total return of 9.88% since Mar. 2010, followed by SPLX with 3.78%. HDLV had a slight positive return of 2.76%, while the two “vanilla” dividend ETNs, SDYL and DVYL, had the lowest total returns of -1.05% and -2.57%, respectively. However, if SMHD had been included in this graph, it would have been by far the worst-performing fund, with a total loss exceeding -15%. A chart of the total return performance of the 7 alternative equity-based 2X leveraged ETNs (excluding LRET and MLPV whose histories are too short) since my last article is presented below. LMLP Total Return Price data by YCharts Unfortunately, all five of the alternative equity ETNs shown in the chart have had negative returns since Mar. 2015. This is not surprising because many of these asset types are considered to be income-generating vehicles that suffered significantly during the interest rate spike in the first half of 2015. MLPL had the worst total return of -21.7%, a consequence of collapsing oil prices, while MORL had the second-lowest total return of -12.8%. The best (relative) performance was turned in by the 2X international real estate ETN RWXL, at -7.17%, followed by BDCL at -7.87%. LMLP had a total return of -8.06% over this period. Finally, a chart of the total return performance of the 2 balanced 2X leveraged ETNs since my last article is presented below. CEFL Total Return Price data by YCharts We can see from the chart above that CEFL had a total return of -9.68% while DVHL had a total return of -12.0%. The total return performances of the 2X leveraged ETNs since Mar. 2015 is shown in the chart below, arranged in order of highest to lowest return. Equity funds are in green, alternative equity funds are in blue, and balanced funds are in yellow. We can see from the chart above that the equity ETNs have had the best total return performances since Mar. 2015. In fact, the five best-performing funds were all equity ETNs. The notable exception of this class was SMHD, which performed poorly. Distributions Most of the funds have “Monthly Pay” in their title, and therefore these funds pay monthly. BDCL, MLPL and MLPV pay quarterly, while SPLX and HOML are total return funds and so they pay out nothing at all. However, investors should be aware that the monthly payments can be quite lumpy. This is especially true when the majority of the underlying constituents of the fund pay quarterly dividends on the same month. An extreme example is MORL, where the “big month” distributions are approximately 10 times as large as the two “small month” distributions. The yields of the funds are also displayed graphically below, arranged in order of smallest to highest yield. Equity funds are in green, alternative equity funds are in blue, and balanced funds are in yellow. We can see from the graph above that MORL has the highest yield, at 26.52%, while CEFL and BDCL have the second and third-highest yields of 22.04% and 20.24%, respectively. At the other end of the spectrum, RXWL, SDYL and LRET have the lowest yields of 4.99%, 5.43% and 7.45%, respectively. Expense ratios As explained above, the headline expense ratio (or “tracking rate”) stated on the UBS website for the ETRACS products is not the total fee charged by the ETNs. One must delve into the pricing supplement to ascertain the additional “financing spread” charged by the issuer. The sum of the two expense ratios is then added to the 3-month LIBOR (currently 0.31%) to calculate the TER of the funds. Additionally, and as mentioned above, the TER should be divided by two if one wishes to compare the expense ratios of these ETNs to non-leveraged funds. The TERs ( including 3-month LIBOR, currently 0.31%) of the funds is also depicted graphically below, from lowest to highest. The breakdown of the TERs are also shown. In my previous article, I wrote that: Finally, we observe that the TERs of the funds span a wide range of values, from 0.80% to 1.65%, with the somewhat unsettling observation that the more recent funds have been launched with higher expense ratios. That statement turned out to be somewhat prophetic as the two funds launched since my last article, LRET and MLPV, have the highest TERs of 1.96% and 2.26%, respectively (HOML and SMHD, two other recent launches, are tied for second at 1.96%). For LRET, the financing spread is shown in the “pricing supplement”, which can be accessed from the fund website : (click to enlarge) For the newest launch, MLPV, there is no pricing supplement. This was the case for two of UBS’ earliest funds, BDCL and MLPL, who do not possess the veiled financing spread. I was ecstatic. I thought “maybe UBS was reading my articles that shed light on their shenanigans and finally decided to lower their expense ratios for the benefit of their investors.” Alas, I was wrong. Instead of a pricing supplement, the financing spread was detailed, for the first time, in the prospectus supplement, which can be accessed from the fund website . The cynic in me thinks that the reason that UBS moved the financing spread from their pricing supplement to their prospectus supplement is to further obfuscate investors about the presence of said spread. After all, why would someone invest in their new launch MLPV, which charges 2.26% in expense ratio, when they could invest in the similar 2X leveraged MLP ETN MLPL, which charges only 1.16% in fees? However, the unwitting investor would not know about this difference because the headline tracking rate displayed for MLPV (0.95%) is only 0.10% higher than that for MLPL (0.85%). I therefore call on UBS to display all relevant expenses clearly on their fund website instead of in fine print within the pricing or product supplements. Conclusion The 2X leveraged funds allow investors to obtain leveraged participation in traditional equity as well as alternative equity classes such as REITs, mREITs, BDCs, MLPs and CEFs. For the average investor, this leverage can be obtained much more cheaply compared to a margin loan from a broker. For example, for the smallest account size, Charles Schwab (NYSE: SCHW ) charges 8.50%, Fidelity 8.575%, Scottrade 7.75%, Merrill Edge 8.625%. Only Interactive Brokers (NASDAQ: IBKR ) (which I use) offers a competitive margin rate at 1.61% for their smallest accounts. This article also provides an update on the two newest issues, LRET and MLPV. Regrettably, the expense ratios of these two funds are the highest or tied-highest of all the ETNs launched so far. While several of these leveraged ETNs offer sky-high yields, investors need to be aware of the drawbacks of these funds, which include leverage decay (which is somewhat ameliorated by the monthly reset), significant expense ratios and credit risk of the fund sponsor [UBS]. Of course, these risks are on top of the inherent risks of investing in each asset class. For example, MLPs are sensitive to commodity prices while REITs/mREITs are sensitive to interest rates. Interested readers may also consult my recent articles on HDLV and CEFL . Disclosure: I am/we are long CEFL, BDCL, MLPL, MORL, LMLP. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.