The ETF industry is on the mend with each passing day and evolving with several launches and filings. Total assets in U.S. listed ETFs are more than $2.1 trillion, while the number of products is close to 1,650 now.
Issuers are trying every possible theme to keep parity with the changes in the global economy. While some are trying to infuse novelty into their offerings, some others are introducing products in an already popular field.
As a part of this ever-growing industry, UBS has come up with two homebuilding products lately. Let’s take a look under the hood.
Newly Launched ETFs in Focus
The two ETNs, ETRACS ISE Exclusively Homebuilders ETN (NYSE:HOMX) and ETRACS Monthly Reset 2xLeveraged ISE Exclusively Homebuilders ETN (NYSE:HOML) have been designed to replicate the performance of mainly the U.S. companies that are engaged in the development and construction of homes and communities.
While HOMX looks to give regular exposure to the ISE Exclusively Hombuilders Total Return Index, HOML seeks to give the monthly compounded 2x leveraged performance of the same index. HOMX charges 40 bps in annual fees and HOML charges 85 bps.
The benchmark follows the performance of a basket of 20 homebuilding companies. The index is heavily concentrated on the top 10 holdings in which it puts over 70% of assets. Lennar (NYSE:LEN) DR Horton(NYSE:DHI) (10.59%) and Toll Brothers Inc (NYSE:TOL) (9.12%) take the top three spots in the basket and make up for a combined 31% share.
From an asset capitalization perspective, small cap securities (63%) constitute almost the entire note, while mid cap securities account for the rest.
How Do These Fit in a Portfolio?
These notes could be interesting choices for those seeking a targeted exposure to the U.S. homebuilding sector. The homebuilding space hogged investors’ attention to start 2015 on sustained economic recovery, a healing job market, rising consumer confidence, moderating home prices and, of course, low interest rates prevailing in the U.S.
With no change in any of the market drivers presently, homebuilder stocks should be in great shape. A plunge in yields is another positive for the space. Though housing starts dropped to their lowest levels in almost a year in February thanks to a frigid winter, many industry experts shrug off seasonal concerns and expect the spring selling season to come up with upbeat housing data.
ETF Competition
The regular homebuilding exchange traded space is not at all teeming with players. iShares U.S. Home Construction ETF (NYSE:ITB) rules this corner. This $2.1 billion ETF is followed by the $1.8 billion SPDR S&P Homebuilders ETF (NYSE:XHB). There is yet another ETF, namely PowerShares Dynamic Building & Construction Fund (NYSE:PKB) operating in the space with about $55.3 million in assets.
There is no other player in the U.S. housing exchange traded products space. Thus, HOMX should not face much difficulty in amassing investors’ assets. Moreover, the expense ratio of HOMX is reasonable and the product is structured as an ETN unlike its peers.
Coming to the leveraged ETFs, investors should note that HOML is the first product to have targeted the U.S. housing ETF space. This should show the product an easy path to success.