• Sun. Apr 11th, 2021

As Home Improvement Surges, Capitalize with the RTH ETF

Amid mandated social distancing regulations, homeowners made good use of their dwellings by improving them in 2020. As home improvement retail rises, ETF investors can capitalize on all the improvement projects with the VanEck Vectors Retail ETF (RTH).

With its second largest holding in retail chain Home Depot, RTH makes for the perfect indirect play on the improving sub-sector. Its current allocation to Home Depot (as of February 28) is 12%.

“One bright retail spot in 2020, the year COVID-19 hit hard in the U.S., was the home improvement and repair segment which saw product sales spike 8.7% compared to the year prior,” a Retail Customer Experience article duly noted. “Total product sales hit $440 billion, according to research from ComprarAcciones.com. In comparison, during the financial crisis in 2008-2009, the home improvement market saw a three-year decline in product sales, according to a press release on the research findings.”

RTH seeks to replicate as closely as possible the price and yield performance of the MVIS® US Listed Retail 25 Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.

To be initially eligible for the index, companies must generate at least 50% of their revenues from retail. Retail includes companies engaged primarily in retail distribution; wholesalers; online, direct mail, and TV retailers; multi-line retailers; specialty retailers; and food and other staples retailers.

RTH gives investors:

  • Access to 25 of the world’s largest and most traded retailers
  • To the technology and innovation remaking the retail industry
  • To global online sales, which are expected to grow 85% from 2019 to 2023
  • Strong fund performance, with RTH up 65% the past 12 months

More Spending to Come

As the supply of real estate remains low, more homeowners not yet willing to sell are turning to home improvement measures. That continued sweat equity could be another catalyst for RTH.

“A Harvard University report predicts annual spending on home repair will grow 4.1% by the end of Q1 this year, but that growth will taper off to 1.7% by Q3 of 2021,” the Retail Customer Experience article added further. “In terms of specific retailers, Lowe’s saw net sales spike 28% to hit $20.31 billion and Ace Hardware’s net sales were up 39.2%, hitting $2.1 billion, according to the release.”

Home Depot also made the cut of top retail performers.

“Home Depot, which is the largest of U.S. home improvement chains, saw sales surge by 25%, from $25.78 billion in Q4 of 2019 to $32.26 billion in the fourth quarter of 2020,” the article added. “The top three home improvement chains sold goods worth a cumulative $54.67 billion in Q4 2020. Comparatively, their collective sales for Q4 2019 totaled $41.88 billion.”

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.