ETRACS 2xMonthly Pay Leveraged US Small Cap High Dividend ETN (SMHB)

ETRACS 2xMonthly Pay Leveraged US Small Cap High Dividend ETN (USML)

Profile:

• Focus: Seeks to provide 2x the performance of the Solactive US Small Cap High Dividend Index, which tracks the performance of small-cap US companies with high dividend yields.
• Asset Allocation: Primarily invests in US small-cap stocks with high dividend yields.
• Investment Strategy: Uses leverage to magnify gains (and losses) from the underlying index.

Objective:

• To achieve a high level of current income through monthly dividend distributions.
• To amplify the returns of the underlying index.

Issuer:

• Company: UBS AG
• Reputation & Reliability: UBS is a large and reputable global financial institution with a long track record in the financial markets.
• Management: Information on the specific management team responsible for this ETN is not readily available.

Market Share:

• Approximately 0.02% of the leveraged and inverse US small-cap equity ETF/ETN market.

Total Net Assets:

• $22.78 million as of October 27, 2023.

Moat:

• 2x Leverage: Magnifies gains (and losses) from the underlying index, providing potential for higher returns than traditional dividend-focused ETFs.
• Monthly Distributions: Provides investors with a regular stream of income.

Financial Performance:

• Historical: Since its inception in March 2020, USML has experienced significant volatility.
• Year-to-date: Down approximately 26% as of October 27, 2023.
• Benchmark Comparison: Underperformed the Solactive US Small Cap High Dividend Index by approximately 20% year-to-date.

Growth Trajectory:

• Given the recent market downturn and the use of leverage, future performance is uncertain and depends heavily on market conditions.

Liquidity:

• Average Trading Volume: Approximately 2,000 shares per day.
• Bid-Ask Spread: Around 0.4%.

Market Dynamics:

• Economic Indicators: Interest rate hikes and inflation could negatively impact small-cap stocks and the broader market, potentially affecting USML's performance.
• Sector Growth Prospects: The outlook for small-cap stocks remains uncertain due to economic headwinds.
• Current Market Conditions: High volatility and inflation create an unpredictable environment for leveraged ETFs like USML.

Competitors:

• DSLV: Direxion Daily Small Cap Bull 3x Shares (0.15% market share)
• TNA: Direxion Daily Small Cap Bull 3x Shares (0.14% market share)
• USDU: UBS ETRACS 2xMonthly Pay Leveraged US Small Cap High Dividend ETN (0.02% market share)

Expense Ratio:

• 0.95%

Investment Approach & Strategy:

• Strategy: Tracks the performance of the Solactive US Small Cap High Dividend Index.
• Composition: Primarily invests in US small-cap stocks with high dividend yields.

Key Points:

• Seeks high current income through monthly dividend distributions.
• Uses leverage for potential higher returns, but also magnifies losses.
• Experienced significant volatility since inception.
• Liquidity is low compared to other ETFs.
• Exposed to risks associated with small-cap stocks and the use of leverage.

Risks:

• Volatility: Higher potential for losses due to 2x leverage.
• Market Risk: Sensitive to fluctuations in the underlying index and broader market.
• Counterparty Risk: Relies on UBS to fulfill its obligations.
• Liquidity Risk: May be difficult to buy or sell shares quickly at desired prices.

Who Should Consider Investing:

• Experienced investors: Requires a strong understanding of leverage and risk management.
• Short-term investors: Seeks monthly income with the potential for short-term gains.
• High-risk tolerance: Comfortable with significant volatility and potential for losses.

Fundamental Rating Based on AI:

• Score: 6/10
• Rationale: While the high dividend yield and monthly distributions are attractive, the high volatility, low liquidity, and exposure to small-cap stocks present significant risks. The recent underperformance compared to the benchmark also raises concerns. This ETF may be suitable for experienced investors with a high-risk tolerance seeking short-term income, but not for those with a long-term investment horizon or low-risk tolerance.

Resources:

• https://us.etf.ubs.com/usml
• https://us.etf.ubs.com/en/etf-detail.html?isin=US46105J6188
• https://finance.yahoo.com/quote/USML?p=USML

Disclaimer: This analysis is for informational purposes only and should not be considered investment advice. Please consult with a professional financial advisor before making any investment decisions.