UBS debuts leveraged ETN linked to Solactive’s US small cap high div index

UBS Investment Bank has listed the new Etracs Monthly Pay 2x Leveraged US Small Cap High Dividend exchange-traded note (ETN) on NYSE Arca, linked to the monthly compounded 2x leveraged performance of the Solactive US Small Cap High Dividend Index.

The ETN offers income potential in the form of a variable monthly coupon linked to two times the cash distributions, if any, of the index constituents via a monthly compounded two times leveraged exposure to the Solactive US Small Cap High Dividend Index comprised of small cap publicly traded stocks with relatively high dividend yields compared with other small cap publicly traded stocks in the US market.

Henning Karen, head of equity indexing at Solactive, said that the interesting idea with this benchmark is that it tracks small caps, while high dividend investment vehicles were traditionally created based on large caps.

“By tracking small caps, investors are giving access via the UBS ETN (SMHD) to a selection of stocks with a forecasted dividend yield and a volatility which are currently both higher than for large caps, offering another option in terms of high div exposure to their equity portfolio, in the search for yield,” said Karen.

This is the second time UBS has deployed a Solactive index in its Etracs range of ETNs following the launch in October of the Etracs Monthly Pay 2x Leveraged US High Dividend Low Volatility ETN which was linked to the Solactive US High Dividend Low Volatility Index.

“As interest rates have been low (and continue to trend lower) while the markets have been very volatile, all major providers have been launching high dividend and/or low volatility products, building various methodologies and sometimes getting more complex as time passes by,” said Karen. “The few indices we calculate in this area include the two recently launched high dividend indices for UBS and another high dividend low volatility used for a certificate by Vontobel in Germany.”

Karen said that Solactive has several other projects in the pipeline, especially aimed at investors with the view that interest rates may not go up as quickly as initially expected in the US.

There are more 50 products linked to Solactive benchmarks of which 22 products are still live including 14 in Germany, nine in Austria, six in the international private banking database offered by RBC Capital Markets and two in France sold by Société Générale, according to SRP data

The Solactive US Small Cap High Dividend Index follows small US-listed companies with the highest average forecast dividend yield compared with their peers. To be included in the index, stocks need to have a market capitalisation of $100m or more, an ATV of #1m or more and to have paid at least one ordinary cash dividend over the previous 12 months.

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UBS debuts leveraged ETN linked to Solactive’s US small cap high div index