Investors who are interested in diversifying into the U.S. real estate market may consider a well-rounded exchange traded fund strategy that pairs yield-generating real estate investment trusts with cyclical homebuilders.
The Hoya Capital Housing ETF (HOMZ) does just that and the strategy is paying off. The fund has increased 1.2% over the past week and 3.8% over the past month.
“Since it’s launch in March, HOMZ has been among the best-performing real estate ETFs,” stated Alex Pettee, president and director of research at investment advisory Hoya Capital Real Estate. “At the ETF-level, HOMZ seeks to address the gap in the market between the yield-focused REIT ETFs and the more highly cyclical Homebuilder ETFs. In addition to REITs and Homebuilders, HOMZ invests in companies involved in home building products and materials, home improvement, home furnishings, home financing, home insurance services, and home technology firms.”
HOMZ tracks the Hoya Capital Housing 100 Index, a rules-based index composed of the 100 companies that collectively represent the performance of the US Housing Industry. According to Hoya Capital, the ETF is designed to track total spending on housing and housing-related services. The underlying index is composed of four US Housing Industry Business Segments, each weighted based on their relative contribution to US Gross Domestic Product.
Specifically, the Hoya Capital Housing ETF includes a 30% tilt toward residential REITs and real estate operators, 30% homebuilders, 20% home improvement retailers, and 20% mortgage lenders and services, which mirrors the percentage breakdown of GDP spending on the housing sector.
“HOMZ has given investors a nice diversified balance between the defensively-oriented REIT ETFs and the more highly-cyclical single-family homebuilding ETFs,” Pettee added.
The real estate sector ETF provides investors with exposure to one of the largest asset classes in the world, a $30 trillion asset class that accounts for nearly a third of annual spending. The sector has experienced mounting housing shortages across the U.S., compounded by favorable demographic trends for household formation.
For more market trends, visit our Smart Beta Channel.