Today, Hoya Capital rolled out its second ETF, which targets 100 common and preferred securities from real estate investment trusts. The Hoya Capital High Dividend Yield ETF (RIET) serves as a complement to the $80 million Hoya Capital Housing ETF (HOMZ).
RIET comes with an expense ratio of 0.25% and lists on the NYSE Arca.
“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,” said Alex Pettee, Hoya Capital’s director of research, in a press release.
The 100-security index has a somewhat complex methodology. First, it selects a security from each of 14 sector buckets based on size and yield, then screens out the two companies with the lowest yields and the two with the highest debt ratios.
From there, it selects the 10 highest-yielding securities from the large cap category and the 25 highest yielding securities from the midcap and from the small cap categories. Finally, it considers the 50 most actively traded REIT preferred securities, selecting the top 30 based on dividend yield, the prospectus says.
During each reconstitution, the different groups are weighted as follows: dividend champions, 15%; large cap REITs, 15%; midcap REITs, 30%; small cap REITs, 30%; and preferred securities, 10%. Securities within each group are equally weighted, according to the document.
RIET Stands Apart
Pettee says the fund has some unique features. For one, it does not focus exclusively on mortgage REITs or equity REITs.
“That sharp line never really made a whole lot of sense to us,” he added, pointing out that by doing away with that constraint, the fund is able to offer better diversification and yields.
Further, most REIT ETFs tend to be cap-weighted, which can be a drag on the yield of such a product. “The largest REITs happen to be lower yielding,” Pettee said, noting that those larger REITs also tend to be tech-related.
Finally, Pettee says RIET includes both preferred and common securities in its portfolio, something that is more common with closed-end funds. “By including the entire REIT universe, you’re drawing that yield from a broader range of options,” he said. RIET's index selects its holdings from a universe of roughly 450 securities.
Contact Heather Bell at [email protected]