Minimal counterparty risk. All cash received in the creation of securities will be held 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 assists in defraying fees.
Real-estate exposure. Since each pair of securities is tied to a broad index, they provide exposure to fluctuations in the values of the real estate in the index (positively or negatively). This helps to avoid risks related to shorting or owning specific properties, markets or sectors.
Hedging opportunities. Down securities are useful in hedging a variety of real estate exposures including direct property ownership, REIT holdings, and mortgage portfolios against a future decline in the market. 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, as well as efficiently rebalance, by allocating assets between exposures to either increases or decreases in values of U.S. commercial properties.
Cost-effective. 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, commercial real estate, into securities that can be easily purchased, hedged, traded, held to their Valuation Date or rolled over for longer investment. Securities may be traded through market-makers and with other U.S. Qualified Institutional Buyers (QIBs) and/or offshore investors.
Tax-efficiency. 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.
Flexibility. With the possibility to change the underlying index, the measuring period and the multiplier, duETS offer unlimited opportunity to create liquidity in illiquid asset classes.
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.