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Jeremy

The best homebuilders ETFs to invest in?

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Hi there,

I am thinking homebuilder ETFs are still a good bet. What do you think and which are the best right now?

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Hi Jeremy,

Before the coronavirus pandemic, the housing market was on an upward trajectory with the homebuilding industry enjoying good returns, and attracting many investors into the homebuilder ETFs. 

Even now, given housing is a resilient industry, it is expected to pick up momentum once the pandemic is contained. Similarly, the low-interest-rate environment, looming entry of millennial buyers and the housing market deficit signify a great future for homebuilders ETFs.

Below are the top three homebuilders ETFs to invest in presently.

IShares U.S. Home Construction ETF

By tracking the results of the Dow Jones U.S. Select Home Construction Index, iShares U.S. Home Construction ETF gives exposure to U.S. companies manufacturing residential homes. Boosting an AUM of $1.1 billion, it is the largest ETF that tracks homebuilders. It trades in a volume of about 2.2 million shares daily and charges annual fees of 42bps. It also charges a 0.44% annual net expense ratio. 

Since the fund managed to stay strong after the 2007-2009 crisis, and have been generating high returns since then, it is expected to pick up the pace after the current market slump, thus worth investing in.

SPDR S&P Homebuilders ETF

With AUM of $811.7 million, it is the second-largest homebuilders ETF and boosts of a trading volume of about 1.8 million shares. By tracking the total return performance of its benchmark index—The S&P Homebuilders Select Industry Index—it brings exposure to the homebuilder's industry. SPDR S&P Homebuilders ETF charges annual fees of 35bps. 

Like the iShares ETF, it also bounced back after the 2007-2009 financial crisis and, hence, it’s expected to overcome the current economic standstill.

Invesco Dynamic Building & Construction ETF

With assets worth $109.1 million, the fund is the third-largest ETF and sees an average of about 15,000 shares daily. It follows the Dynamic Building & Construction Intellidex Index, where it invests about 90% of its net assets in the provided stocks. The fund also charges 0.63% in annual net expense ratio.

Invesco Dynamic Building & Construction ETF—like SPDR S&P Homebuilders ETF and iShares U.S. Home Construction ETF—also managed to stay firm after the previous crisis and will likely do the same after COVID-19 pandemic. 

 

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The top ETFs in the homebuilders’ sector are:
(ITB) iShares US Home Construction ETF
ITB ETF gives you an exposure to US firms whose niche is manufacturing residential homes. The ETF does this through keeping track of the US select Home Construction Index of the Dow Jones. This ETF has a 45-stock basket.
(XHB) SPDR S&P Home Builders ETF
Among the most popular picks within the homebuilding sector, XHB ETF concentrates on following The Homebuilders’ Select Industry Index on the S&P. In its portfolio are 35 stocks that have an equally weighted 5% exposure each.
(PKB) Invesco Dynamic Building and Construction ETF. This ETF has a basket of 30 stocks, with each stock taking a 5.2% share of the ETF’s exposure. PKB ETF has taken a strategy that involves following The Dynamic Building and Construction Intellidex Index.
These products credit their apex position to the prevention of company specific risks. They give investors top diversification and an avenue to reduce volatility.
 

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Great question,Jeremy,

Homebuilder ETFs are funds that track businesses that deal with construction supplies, house appliances, and furnishings. The first on the list is XHB. It attempts to match the S&P TMI index in performance before expenses are deducted. The fact that it follows an equal-weighted index means you also get exposed to large, medium, and low-cap stocks. Unlike conventional sector-specific investing, this fund provides traders with more strategic positions.
ITB is also worth your time given it reviews the DJSHMB index that features American equities in the building sector. Approximately 90% of the fund’s assets go to the primary index’s securities and depository receipts. The remainder may be invested in swaps, options, and futures. Surviving the 2007-2009 economic crisis adds to the fund’s legitimacy. Needless to say, it has been strong ever since.
Since they focus on a single industry, home ETFs are riskier than their alternatives in broad market indexes. This calls for long holding periods to make up for short-term value declines.
 

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Hey Jeremy, thanks for asking the question.

iShares U.S. Home Construction ETF (ITB) tracks several home construction companies as well as several suppliers, providing the sector with significant exposure. ITB follows the Dow Jones U.S. Select Home Construction Index, which tracks the U.S. stocks from this industry. The most important assets of this ETF are home construction companies D. R. Horton, Lennar, and NVR, as well as industry suppliers Home Depot and Lowe’s.

SPDR S&P Homebuilders ETF (XHB) follows the S&P Homebuilders Select Industry Index, which tracks the home construction sub-industry part of the S&P Total Markets Index. This ETF utilizes an equal-weighted approach, meaning that large and small companies get nearly the same exposure. XHB’s notable components are wood products manufacturers Trex Company Inc., home improvement products manufacturer Masco Corp. and Lowe's.

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