Home prices have always carried an unpredictable stabilization nature. With the economic recession affecting all the markets, home sales have also sustained little recovery. Despite the macroeconomic picture not very welcoming several aspects of homebuilding sector have been eye catching for investors. Although home builder ETFs remain on the narrow segment of the equity market but they can add a good holding in a diversified equity portfolio.
Economic experts ask for looking into two ETF options existing for investors, SPDR S&P Homebuilder ETF (XHB) and iShares Dow Jones US Home Construction Index Fund ETF (ITB). Another popular ETF in home building include PowerShares Dynamic Building/Construction ETF (PKB).
XHB is one of the larger and more liquid Home Builder ETFs on the market. It tracks the S&P Homebuilders Select Industry Index with 32% of the assets invested in construction companies. The fund has remaining holdings in the housing market as well. XHB has an expense ratio of 0.35% which makes it the cheapest and reasonable ETF in home building space.
Investors having great level of conviction regarding the prospects for the industry use different ETFs to avoid any downturn. In the United States the straight housing-market disclosure offered by XHB is amazingly low. Conceivably still more stimulating for investors–and usually counterintuitive, XHB also outperformed the S&P, due to strength in the non-homebuilding portion of the SPDR’s portfolio. Currently it contains 26 securities with the largest holdings in USG Corp of 4.9%, Pier 1 Imports of 4.5% and Owens Corning of 4.4%.
ITB ETF tracks the Dow Jones US Select Home Construction Index which has a direct exposure to US based home building companies. This is good for investors to have a direct industry exposure with this ETF. ITB has holdings in 27 companies with an expense ratio slightly higher than XHB of 0.48%. ITB has performed well in the first quarter of last year by outperforming the S&P 500 Index. The top holdings of ITB ETF are with NVR of 8.4% and Pulte Group of 8.4%.
PowerShares Building & Construction Portfolio Fund focus on the Building & Construction Intellidex Index. It has 90% of its total assets in common stocks of over $40 million. The index is known for evaluating companies based on investment merit criteria like fundamental growth, stock valuation and risk factors.
The home building industry in the United States of America has been shown instability till first quarter of 2009. The US government paying heed towards the problem faced by the industry chalked out a plan for its revival by introducing the homebuyer tax–credit programme. Homebuilding sector was one of the industries which were hit hard in the United States during recent recession. That amalgamation sent several homebuilders reeling and saw shares fall over the earlier period of 2009. However, the Home builder ETFs have been performing well since last year. Especially XHB and ITB ETF, that has been catching many investor’s attention by gaining increase in the year to date return of 10.5% and 6.5%.
