In a debut ETF launch, research firm Hoya Capital Real Estate has sought to replicate all corners of the US housing sector into one ETF, the Hoya Capital Housing ETF or HOMZ.
Housing is the single largest expenditure for the average American household and one of the most important asset classes, the firm says, but out of the reach to many investors due to rising housing costs and lack of innovation in the ETF market.
Alex Pettee (pictured), President of Hoya Capital Real Estate, explains that his firm started in 2015 as a research focused investment advisory shop, active in the real estate and housing sector and publishing research online.
“This fund is our first major product launch and a product of two or three years’ worth of work,” Pettee explains. The initial research revealed that no existing index tracked the broader housing market and there was no ETF that the firm considered an accurate representation of the housing market.
So, they created their own index. “The index was designed to track total spending on housing and housing related services at the national level,” Pettee explains. It is a modified equal weight index, spread across four major housing categories, with 100 companies divided 30 per cent into rents and ownership categories, so largely in REITs, 30 per cent into home construction; 20 per cent on home improvement and home furnishing and 20 per cent into financing, technology, and services companies.
“The response has been great,” Pettee says, one week in with USD3.5 million already raised. “We have been surprised by the response particularly from young investors. It tells us that our core message that this ETF is designed to capture the macro trends affecting the US housing market, including rising rents and other housing costs, is being well received by the investors who are most impacted by these trends, particularly young investors and renters.”
Historically, the housing sector has split between traditional real estate funds and homebuilder funds. “Our fund straddles the two,” Pettee explains. “The performance of the existing real estate and homebuilder ETFs are driven significantly by interest rates. Our secondary thesis is that HOMZ may be relatively less interest-rate sensitive because it invests in so many diverse sectors that collectively have historically been less volatile and interest rate sensitive.”
Pettee also anticipates interest from the institutional market, with hedge funds and even insurance funds or other institutions looking to hedge existing property exposures.
“We think that because the index and the ETF is the most direct proxy on the US housing market, this should result in significant interest from institutional investors seeking to take a directional view on housing.”