U.S. Markets closed

More Nesting Homeowners Could Support Homebuilder ETFs

This article was originally published on ETFTrends.com.

Home improvement companies and homebuilder-related ETFs could find support from homeowners whom are willing to reinvest in their own homes.

Alvaro Lacayo, vice president of equity research at G.research, argued that we may see "decent" returns on home improvement stocks despite diminished consumer sentiment in the housing sector, CNBC reported.

"If you look at the average age of the U.S. housing stock you're talking about 40 years plus," Lacayo told CNBC. "And the more time you spend in a house the more you're likely to reinvest."

Lacayo pointed out home improvement companies likes Lowe's and Fortune Brands, which have experienced double-digit losses in the past year.

While the market could soften in the first and fourth quarters of this year as house appreciations dip to as much as 3%, Lacayo argued that it is a "fairly healthy level" to support remodeling growth.

"Timing when demand will come back from this pause is a little bit challenging, and I think it'll take at least several months to sort of figure out," Lacayo said. "You'll see that come through in the earnings releases as we go forward, that there'll be a certain amount of uncertainty at least for the first few months."

ETF investors who are interested in gaining exposure to the home construction segment can look to homebuilder-related ETFs, such as the SPDR S&P Homebuilders ETF (XHB) , iShares U.S. Home Construction ETF (ITB) and Invesco Dynamic Building & Construction ETF (PKB) .

These ETFs do not solely focus on home construction companies as they also include discretionary retail names. For example, XHB includes a 35.7% tilt toward building products, 9.8% household appliances, 8.7% home improvement retail, 7.2% home furnishings and 6.1% home furnishing retail. ITB includes 14.9% building products, 8.7% home improvement retail, 3.4% home furnishing, and 1.1% construction materials. PKB's portfolio also includes names like Home Depot 5.4% and Lowe's 5.3%, among others.

For more information on the housing market, visit our homebuilders category.