Dividends, Leverage, Small-Caps in one ETN

It might be the best of three worlds for adventurous, risk-tolerant income investors as dividends, small-cap stocks and leverage have come together in the new ETRACS Monthly Pay 2xLeveraged Small Cap High Dividend ETN (NYSEArca: SMHD).

The new ETN offers double monthly leverage on the Solactive US Small Cap High Dividend Index for a 2x index yield of a whopping 17.7%, according to UBS data. The new ETN offers “significant income potential” in the form of a variable monthly couponlinked to 2x the cash distributions, if any, on the Index constituents, according to a statement issued by UBS.

The Solactive US Small Cap High Dividend Index is nearly five years old and has returned nearly 36% since inception, according to Solactive data. The index is home to 100 stocks.

Index constituents include LinnCo (NasdaqGS: LNCO), Denbury Resources (NYSE: DNR), Peabody Energy (NYSE: BTU), Cliffs Natural Resources (NYSE: CLF) and Invesco Mortgage Capital (NYSE: IVR).

SMHD’s tempting dividend yield is not inexpensive to access as the ETN charges 0.85%, accrued daily, according to UBS.

ETNs are debt-like instruments. An issuing financial institution promises to pay ETN investors a return on a benchmark index before the ETN matures. Additionally, some ETNs provide current distributions to investors. Since ETNs are a type of debt security, investors will have to watch out for the credit worthiness of the issuing bank. [ETNs Gain Big Assets]