Fund debuts with housing as foundation
As of Monday afternoon, in four trading days since the previous Wednesday, shares of the home construction giant Toll Brothers were up 3 percent, while Beacon Roofing Supply’s were off by the same margin and homeowner insurance underwriter Allstate’s were flat.
As Alex Pettee sees it, the need for new housing in the United States will provide an overall lift for companies that touch aspects of that industry. His inaugural fund debuted last week with the goal of giving everyday investors a way to profit from any such trend.
In Norwalk, Pettee has launched what he believes to be the first exchangetraded fund pegged to the diverse components that make up the U.S. housing sector, encompassing everything from finding a home, to buying or leasing one, insuring it, furnishing it, and keeping up with the maintenance over time.
Similar to mutual funds, exchange-traded funds are indexed to publicly traded stocks — but ETF shares can be bought and sold themselves on public exchanges. Hoya Capital Real Estate’s new HOMZ fund debuted last week on the New York Stock Exchange’s Arca system for ETF securities.
To the extent possible in a fund encompassing 100 stocks, Hoya Capital is as close to home as it gets for many investors. For instance, about one in four investments touch Danbury, including brokerage giants Realogy and ReMax; mortgage lenders like Bank of America and JPMorgan Chase; housing developments by Avalon Bay and Toll Brothers; home improvement stores Home Depot and Lowe’s; and of course Amazon which has numerous Danbury-area businesses selling through its website.
“Out thesis is that there’s 100 million renters out there, and that they are all affected by rising housing costs,” Pettee said. “We think this is the most direct way to (capture) that.”
The ETF is weighted, with builders and real estate management firms carrying the greatest heft on the HOMZ index, and financial and technology companies having a smaller influence.
From just over 1,600 funds a decade ago, the ETF sector has mushroomed to more than 6,500 as of February according to the London-based market research firm ETFGI, with 100 new funds on a net basis in the first two months of 2019. The industry entered March with a record $5.2 trillion in assets under management, including $44 billion in net new capital in February alone.
Add Pettee’s HOMZ fund to the March totals to come, with Hoya Capital created on the foundation of Pettee’s master’s project at Georgetown University’s real estate studies program. Pettee designed the fund on the premise of a national housing shortage that over time will boost stocks of companies that touch the industry.
His mother, Sheila Pettee, is CEO and chief compliance officer. Hoya Capital is co-located in the Rowayton office of her Pettee Investors. Hoya Capital’s executive vice president is Jonathan Morris, a Georgetown professor who advised Pettee on his graduate work.
Alex Pettee said the most challenging aspect for him has been handling all facets of the startup and management of a fund, with industry giants like BlackRock, Vanguard and State Street Bank wielding massive marketing power. With the fund now being actively traded, he anticipates Hoya Capital bringing on additional people as investors purchase shares and assets under management accumulate.
“For a long time, we’ve been talking about the underinvestment in housing at the national level,” Pettee said. “The average age of the single family home in the United States is the oldest it’s ever been . ... Investors ... are saying, ‘Why isn’t there an ETF that is a pure play on the housing market as a whole?’ ”