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ETF Chart of the Day: Homebuilders


We have covered the Homebuilders space on several occasions in this column in the past, with most of that coverage speaking about impressive out-performance in the sector relative to the broad market in various trailing time periods.

Recent options activity in two well-known ETFs in the space, ITB and XHB, present an opportunity to revisit these.

However, this out-performance has reversed course year to date (with the bulk of this move occurring this summer), with both of these ETFs notably trailing the S&P 500 at this point.

ITB (iShares U.S. Home Construction, Expense Ratio 0.48%) has been hit the hardest, but one may expect this given the near home-builder pure exposure of the underlying index, with top holdings including PHM (10.13%), LEN (9.50%), DHI (9.45%), TOL (8.13%), and NVR (7.25%) and the sensitivity of such stocks to moves in interest rates.

XHB (SPDR Homebuilders, Expense Ratio 0.35%) is slightly bigger in fund size than ITB, with $1.85 billion in assets under management compared to ITB’s $1.51 billion, but the fund unlike its name suggests, is more focused on “Homebuilder and related industries” exposure as opposed to being laser focused on the pure homebuilding names themselves.

Top holdings are currently SCSS (3.41%), MHK (3.37%), HD (3.37%), LII (3.36%), and WSM (3.35%). One may note that none of these top holdings are “homebuilders,” but instead retailers (like HD, SCSS, WSM) that supply home furnishing, accessories, and construction materials for example.

XHB also follows an equal weighted index methodology, whereas ITB is market cap driven, which will obviously yield varying results dependent on the investment environment. PKB (PowerShares Dynamic Building & Construction, Expense Ratio 0.60%) is a third offering in the space, employing the “Intellidex” index approach in terms of its security selection and having a look that resembles XHB more than it does ITB (top holdings such as MHK, HD, JEC).

iShares U.S. Home Construction

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

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