Hoya Capital launches high income US real estate ETF

Sep 22nd, 2021 | By | Category: Alternatives / Multi-Asset

Real estate investment specialist Hoya Capital has introduced its second ETF, a passively managed fund targeting some of the highest-yielding property securities in the US.

Hoya Capital launches high income US real estate ETF

The ETF’s index was yielding 6.70%, as of the end of August.

The Hoya Capital High Dividend Yield ETF (RIET US) has been listed on NYSE Arca.

The fund tracks the proprietary Hoya Capital High Dividend Yield Index which selects its constituents from a universe of common and preferred securities issued by US-listed real estate investment trusts (REITs) and real estate operating companies (REOCs).

The broad eligible universe means that the fund is the only real estate ETF to blend common and preferred securities from the US property sector.

The selection process begins by screening out securities with market capitalizations below $100 million and average daily trading volumes under $100,000.

The methodology divides the remaining eligible companies into three equally sized tiers based on market capitalization: large-cap, mid-cap, and small-cap. Within each tier, companies are classified into one of 14 property sectors (healthcare, data center, storage, home financing, industrial, net lease, lodging, commercial financing, infrastructure, retail, office, residential, agriculture, or specialty) based on where the majority of a company’s revenue is derived from.

The index then identifies ten “Dividend Champions” by selecting the two largest companies from each property sector and, within each pair, selecting the company with the highest most-recent ordinary dividend yield. From this group of 14 companies, the two with the lowest dividend yields and the two with the highest debt ratios are eliminated. The ten remaining Dividend Champions are assigned weights of 1.5% each.

From the remaining securities, the index selects the highest-yielding companies from each market capitalization tier based on the following weights and quantities: large-cap (ten constituents, equally weighted at 1.5% each), mid-cap (25 constituents, equally weighted at 1.2% each), and small-cap (also 25 constituents, equally weighted at 1.2% each). The selections are subject to a maximum of six companies per property sector in each market capitalization tier.

The index then turns to preferred securities issued by REITs and REOCs, selecting the 50 most actively traded preferreds and, from this group, selecting the 30 with the highest dividend yields. Each chosen preferred security receives a weight of 0.33%.

The index is reconstituted and rebalanced semi-annually in June and December.

Highlighting the ETF’s income potential, the index was yielding 6.70% at the end of August 2021. Distributions will be made by the fund on a monthly basis.

The ETF comes with a net expense ratio of 0.25% due to a fee waiver in place for at least one year. Its gross expense ratio is 0.50%.

RIET’s introduction follows the March 2019 launch of Hoya Capital’s debut ETF, the Hoya Capital Housing ETF (HOMZ US). HOMZ is linked to the Hoya Capital Housing 100 Index which includes stocks from four US housing segments – homeownership and rental operations, home building and construction, home improvement and furnishings, and home financing, technology, and services. Each segment is weighted based on an approximation of its contribution to US Gross Domestic Product. The fund houses $80 million in assets and comes with an expense ratio of 0.30%, making it the cheapest ETF to target the US housing sector.

Alex Pettee, Director of Research at Hoya Capital, said: “RIET exclusively targets the income side of the real estate sector, making it the perfect complement to HOMZ, which seeks to invest in some of the fastest-growing real estate securities. With RIET and HOMZ, investors are now able to better align their portfolio with their specific investment objectives – whether it be higher income or higher growth.”

Jonathan Morris, Professor at Georgetown University, Founder of REIT Academy, and Research Advisor at Hoya Capital, added: “RIET is particularly innovative because it achieves its premium yield not by going all-in on the riskier segments of the real estate sector, but rather by expanding and redefining the real estate investible universe. The diligently researched index selection process incorporates innovative exposure to both common and preferred stock, plus a thoughtful mix of equity and debt exposure to real income-producing assets through its holdings in companies across the broader REIT universe.”

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