Want To Be Long Housing? Buy HOMZ – ETF Series Solutions – Hoya Capital Housing ETF (NYSEARCA:HOMZ)

Most of my readers know that I frequently check the pulse of the housing market by looking at leading indicators like building permits, NAHB housing sentiment and other indicators. I use the iShares U.S. Home Construction ETF (ITB) to track homebuilders without having to buy stocks that are less dependent on the housing cycle. In this article, I will show you a very interesting long-term ETF that might be a very profitable long-term investment. I am talking about the Hoya Capital Housing ETF (HOMZ).

Source: Amsterdam Mamas

What’s HOMZ?

The HOMZ ETF tracks the Hoya Capital Housing 100 index. This index is composed of 100 companies that collectively represent the performance of the US housing industry. The purpose was to design a new barometer for the US housing sector. So, unlike my monthly homebuilding articles, we are here dealing with an ETF that goes far beyond traditional homebuilders.

The ETF consists of 4 segments. All segments are constructed according to the breakdown of GDP spending on housing. As you can see, 30% of capital is allocated in home ownership and rental operation stocks. The same amount is invested in homebuilding and construction stocks. Home improvement and home financing stocks have a 20% weighting each. The pie chart containing some of the stocks reveals that the ETF is holding a few very familiar stocks like Home Depot (HD), Mohawk Industries (MHK), Lennar (LEN) and Zillow (Z).

Source: Hoya Capital

Moreover, the top 10 holdings of the ETF have a total weighting of slightly less than 20% according to ETFdb. The 50 largest holdings have a weighting of 67.7%, which once again proves that the ETF is not heavily invested in just a few companies as one probably already assumed based on the pie charts and table above. The market cap breakdown also covers a wide variety of stocks as large-cap stocks only account for 38% of the ETF’s exposure. Mid-cap stocks have a 36% weighting followed by small-cap stocks at 21%. The expense ratio is at 0.45% which in my opinion is not much and comparable to the homebuilding ITB ETF which has an expense ratio of 0.42%.

One of the main reasons why this ETF is well-diversified is because it allows American renters to gain access to an asset class that was hard to get access to, according to Hoya Capital. It is also a way for homeowners to diversify their concentrated housing exposure. This is also the reason why the ETF makes sense for homeowners as it offsets some of the impacts from rising rents and overall higher housing costs.

The company’s investment case for US housing stocks consists of 4 major points.

1. US housing is one of the largest asset classes in the world, accounting for almost one-third of annual spending.
2. The mounting housing shortage in the US compounded by favorable demographic trends for household formation.
3. Deferred home improvement spending (the average American home is almost 40 years old, which is a new record).
4. The continued rise in rents and housing costs. Housing costs have outpaced wage growth and inflation in general.

The ETF has outperformed the S&P 500 by 200 basis points since August 14. Unfortunately, the ETF started trading in March of this year making it impossible to display the long-term performance.

Data by YCharts

This is what the performance looks like compared to some competitors. As you can see, the ETF is outperforming the S&P 500 by more than 600 basis points but is almost 1000 basis points below the pure homebuilding ETF ITB. This does not mean that HOMZ is worse, it only displays the current situation where massive amounts of money went to homebuilders as a play to benefit from falling rates. 1000 basis points outperformance sounds good, but don’t forget that the ITB ETF fell by 38% between January and December of 2018. Unfortunately, HOMZ was not listed in 2018, but I am pretty sure that the ETF would have outperformed ITB by more than 1000 basis points during that period.

Data by YCharts

Moreover, this ETF has a 2.15% dividend yield and a monthly distribution making it an interesting, diversified long-term investment (see dividend history).

Takeaway

HOMZ is a new ETF aimed to generate a steady income from monthly dividends and steady capital gains from one of the world’s largest asset classes: US housing.

The ETF has a relatively low expense ratio of 0.45% and a well-diversified holding structure covering all aspects of housing – not just homebuilding. The ETF has easily outperformed the S&P 500 since inception and will likely outperform homebuilding-only ETFs as well in the long run as homebuilders are prone to larger drawdowns.

I like this ETF very much as a long-term investment, and think it’s appropriate to say that ITB is for trading while HOMZ is for investment purposes. The ETF is young, but I have no doubt we will see a continuing outperformance compared to the S&P 500 in the longer term.

I will keep you updated!

Thank you very much for reading my article. Feel free to click on the “Like” button and don’t forget to share your opinion in the comment section down below!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article serves the sole purpose of adding value to the research process. Always take care of your own risk management and asset allocation.