Hedging Your Bets In Real Estate ETFs

MacroShares, the brainchild of Robert Shiller and several other investors, is about to launch their long-awaited housing ETFs.

They are in the final stages of registration with the SEC, so there is no timetable for when trading will begin, but hopefully we may begin trading on the NYSE Arca toward the end of the month.

MacroShares already allows you to bet with or against the oil market (DOY and UOY are the symbols). If all goes well, by the end of April you will be able to bet with or against the housing market.

Here's how it will work:

1) The benchmark index is the S&P Case Shiller Composite-10, an index comprised of real estate sales from San Diego, Los Angeles, San Francisco, Las Vegas, Denver, Chicago, Boston, New York, Washington, DC, and Miami. Those 10 cities comprise about 30 percent of all the real estate transactions in the United States.

2) There will be an initial Dutch auction IPO (managed by Hambrecht) whereby investors can bid how much they are willing to pay for an Up share or a Down share.

The Up share (symbol UMM) will deliver three times the return of the benchmark.

The Down share (symbol DMM) will deliver three times the INVERSE return of the benchmark.

3) That process will take 7 business days. At the end of that period, the auction closes, investors receive their shares, and the following business day they will begin trading on NYSE Arca.

4) The underlying collateral is held in Treasury bills (i.e. you don't actually own real estate).

For investors who have significant exposure to the real estate market, this is an opportunity to hedge your bets. If real estate values continue to fall, the Down will go up in value. If the real estate market starts to recover, the up will go Up in value. And vice-versa.

Later this year, they are hopeful they will be able to bring out individual indices for each of the 10 cities.

This one has been a long time coming, and will be one of the most eagerly-watched ETFs of the year.



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