Minimal counterparty risk. The assets of each series, including all cash received in the creation of securities, will be held only in cash or U.S. Treasury bills, bonds or notes in the custody of the custodian. Each security has its own CUSIP number. duETS are not swaps. duETS are not notes. Treasury yield is included in NAV and securities value and assists in defraying fees.
Multiplier. duETS’ U.S. Commercial Property Securities has a 10X multiplier for Downs and a 2.5X multiplier for Ups when purchased at par value. Each Down and Up share represents $100 of notional value at these multipliers. The price-sensitive multiplier delivers greater hedging value than the amount of cash invested in duETS. This reduces the cost of hedging.
Risk management. Because each pair of securities tracks a broad national index, they provide beta-driven exposure to fluctuations in commercial real estate values (positively or negatively). This helps to avoid risks relating to shorting or owning specific properties, markets and sectors.
Hedging opportunities. We believe the Down securities are useful in hedging a variety of real estate exposures including direct property ownership, REIT holdings, and mortgage portfolios. They also give investors a way to speculate on cyclical declines in national real estate values.
Portfolio diversification. duETS U.S. Commercial Property Securities enable asset managers to increase diversification by allocating assets between exposures to either increase or decrease in values of U.S. commercial properties.
Reduced costs of ownership. Compared to certain alternative structures, duETS are a cost-effective way to obtain down or up exposure to real estate. They do not have the contango cost risk of futures, the slippage of inverse and leveraged ETFs, or the high transaction costs of OTC swaps. The annual fund management fee is 0.85%.
Liquidity potential. duETS have the potential to help turn the world’s largest illiquid asset class, real estate, into securities with an established Valuation Date at the end of a two-year period. In the interim, securities may be traded through market-makers and with other U.S. Qualified Institutional Buyers (QIBs) and/or offshore investors.
Tax-efficiency. At their Valuation Date, Down and Up securities’ values are set in part by the amount of index change since the start of the applicable Measurement Period and investors obtain such value either through a cash out or through a combination of cash and securities converted to securities of the same series tied to the same underlying index, but tied to the next successive two-year Measuring Period. For tax purposes, duETS are expected to be treated as equity securities, not as real estate property investments. For foreign non-pensions, duETS are not subject to the withholding requirements of FIRPTA.