A new player on the exchange-traded fund scene has debuted what it claims is a new kind of ETF focused on the housing sector.
Hoya Capital Real Estate on Wednesday launched the Hoya Capital Housing ETF (HOMZ), which tracks an index of 100 companies placed into four residential real estate-related sectors. Two sectors—home ownership and rental operations, and home building and construction—both comprise 30 percent of the index. The other two sectors—home improvement and furnishings, and home financing, technology and services—both make up 20 percent.
From there, companies are placed within eight subsectors that are weighted by their respective contribution to U.S. economic output. Companies are equal weighted within their respective subsector. For example, the home building and construction sector that comprises 30 percent of the index contains two subsectors: homebuilders, and home building products and materials. There are 10 homebuilders, each with a weighting of 1.5 percent. The other subsector has 20 constituents, each with a weighting of 0.75 percent.
In short, it’s a modified equal-weight index with a tilt toward mid-cap blend.
“We created the index to track total spending on housing at the national level, and that includes rents and spending on construction and home improvements,” says Alex Pettee, president and head of ETFs at Hoya Capital Real Estate, a real estate research firm in Rowayton, Conn.
The housing ETF market is dominated by a few, very large players led by the iShares U.S. Home Construction ETF (ITB), a nearly $1.1 billion fund that charges an expense ratio of 0.43 percent.
Homebuilders comprise 65 percent of its portfolio. Another 15 percent is allocated to building materials, and there's a combined 12 percent stake in specialty retailers and appliance makers. The portfolio is filled out with a smattering of other industries.
The SPDR S&P Homebuilders ETF (XHB) is a $650 million product with a portfolio that’s more akin to that of the new HOMZ fund with less emphasis on homebuilders (31 percent) and a bigger allocation to specialty retailers and appliance makers (32 percent combined). The other 37 percent is tied to building materials. The fund’s investment fee is 0.35 percent.
Pettee says the HOMZ fund’s big differentiator versus these ETFs is that it includes a sector containing home financing; property, title and mortgage insurance providers; and real estate technology and brokerage services. That includes firms such as CoreLogic, a real estate data provider; Redfin, a real estate brokerage website; and Zillow, an online real estate database.
Pettee posits that there hasn’t been a lot of innovation in the underlying indexes of ITB and XHB since they began trading in 2006. “But the housing market has changed, and our ETF captures that change,” he says.