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Is An ETN Yielding 20%, Expected To Decline In Price By 4% A Year, Better Than One Yielding 15% Not Expected To Decline?

Published Thu, 07 Mar 2019 14:07:22 -0500 on Seeking Alpha

Decay, Drift and Downward Bias in Leveraged ETNs
Much has been written about possible structural aspects of leveraged ETNs, that could bias the value of leveraged ETNs downward, relative to unleveraged assets that the ETNs are based on. Roll yield, tracking errors, beta-slippage, management fees and expenses are commonly cited as causes for the relative decay. Roll yield is associated with both ETFs and ETNs that employ commodity futures. Beta-slippage is based on the fact that if the underlying asset rises on day one by any given percentage amount and then declines so that the underlying asset is back to its' original price. the leveraged ETN has suffered a loss. This is related to the issue of rebalancing to maintain leverage in ETNs, possibly causing them to buy high and sell low. That issue was addressed in Do Leveraged ETNs Buy High And Sell Low? And Does It Matter?
Tracking errors can occur with ETFs or ETNs that attempt to mimic the performance of a large index such as the S&P 500 (SPY), by only holding a sample rather than the entire index. The high-yielding 2X leveraged ETNs that I follow are not explicitly vulnerable to such tracking errors, since they use all of the components of their underlying index. The high-yielding 2X leveraged ETNs that I follow are: the UBS ETRACS Monthly Pay 2X Leveraged Mortgage REIT ETN (MORL) and a twin which is essentially identical in all economic respects, the UBS ETRACS Monthly Pay 2X Leveraged Mortgage REIT ETN Series B (MRRL),... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
TORTOISE MLP FUND 14.25   0.0 0.00 0.00 11.86
TORTOISE ENERGY INFRASTRUCTURE 23.53   0.0 0.00 2.62 11.10
LIBERTY ALL STAR EQUITY FUND 6.44   0.0 0.00 0.82 10.19
UBS 13.17   10.4 1.26 0.69 5.20
SPDR S&P 500 ETF 292.23   0.0 0.00 5.24 1.80


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