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Applying Net Present Values And Internal Rates Of Return To 2X-Leveraged ETNs Yielding More Than 20%

Published Wed, 09 Jan 2019 23:17:15 -0500 on Seeking Alpha

Why Look at the Net Present Values And Internal Rates of Return for the 2X-Leveraged ETNs The 2X-Leveraged High-Yield ETNs that I follow are still yielding more than 20% on annualized compounded basis. ETNs are exchange-traded notes that have specific maturities. While typically called dividends, the payments from the 2x Leveraged High-Yield ETNs are technically distributions of interest payments on the ETNs, based on the dividends paid by the underlying securities that comprise the index upon which each of them is based, pursuant to the terms of the indentures.
Usually, not much attention is paid to the maturity dates of these ETNs, since the primary reason to buy any of the 2x Leveraged High-Yield ETNs is the high current yield. Many investors are more concerned with the various ways in which the ETNs can be redeemed prior to maturity, rather than when they will mature. Unlike traditional bonds and notes, the principal or face values that a holder will receive at maturity or early redemption of these ETNs, is the net indicative (asset) value of a 2x Leveraged High-Yield ETN, which fluctuates based on the market prices of the components of the index upon which each ETN is based.
The maturity dates of each of the 2x Leveraged High-Yield ETNs are: the UBS ETRACS Monthly Pay 2x Leveraged Closed-End Fund ETN (NYSEARCA: CEFL) due 12/10/2043, the UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN (NYSEARCA: MORL) due 10/16/2042, the UBS ETRACS Monthly Pay 2X Leveraged Mortgage... Read more