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Is SPDR S&P Homebuilders ETF (XHB) a Strong ETF Right Now?

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  • LEN-B

Making its debut on 01/31/2006, smart beta exchange traded fund SPDR S&P Homebuilders ETF (XHB) provides investors broad exposure to the Industrials ETFs category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

The fund is managed by State Street Global Advisors. XHB has been able to amass assets over $1.86 billion, making it one of the larger ETFs in the Industrials ETFs. Before fees and expenses, XHB seeks to match the performance of the S&P Homebuilders Select Industry Index.

The S&P Homebuilders Select Industry Index represents the homebuilding sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Homebuilders Index is a modified equal weight index.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Operating expenses on an annual basis are 0.35% for this ETF, which makes it one of the least expensive products in the space.

It's 12-month trailing dividend yield comes in at 0.55%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 62.70% of the portfolio, the fund has heaviest allocation to the Consumer Discretionary sector; Industrials and Energy round out the top three.

Taking into account individual holdings, Nvr Inc. (NVR) accounts for about 3.84% of the fund's total assets, followed by Lennar Corporation Class A (LEN) and Floor & Decor Holdings Inc. Class A (FND).

XHB's top 10 holdings account for about 36.96% of its total assets under management.

Performance and Risk

The ETF has added about 35.27% so far this year and it's up approximately 44.06% in the last one year (as of 10/28/2021). In the past 52-week period, it has traded between $51.98 and $79.38.

The fund has a beta of 1.42 and standard deviation of 32.55% for the trailing three-year period, which makes XHB a high risk choice in this particular space. With about 37 holdings, it has more concentrated exposure than peers.

Alternatives

SPDR S&P Homebuilders ETF is an excellent option for investors seeking to outperform the Industrials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Invesco Dynamic Building & Construction ETF (PKB) tracks Dynamic Building & Construction Intellidex Index and the iShares U.S. Home Construction ETF (ITB) tracks Dow Jones U.S. Select Home Construction Index. Invesco Dynamic Building & Construction ETF has $273.13 million in assets, iShares U.S. Home Construction ETF has $2.67 billion. PKB has an expense ratio of 0.59% and ITB charges 0.41%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Industrials ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.


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SPDR S&P Homebuilders ETF (XHB): ETF Research Reports
 
Lennar Corporation (LEN) : Free Stock Analysis Report
 
NVR, Inc. (NVR) : Free Stock Analysis Report
 
iShares U.S. Home Construction ETF (ITB): ETF Research Reports
 
Invesco Dynamic Building & Construction ETF (PKB): ETF Research Reports
 
Floor & Decor Holdings, Inc. (FND) : Free Stock Analysis Report
 
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