Market Overview

2 Homebuilder ETFs Establish New Uptrend

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2 Homebuilder ETFs Establish New Uptrend

Coming off a year marked by tepid returns and high volatility, the homebuilding sector has recently broken out to new highs and is looking to prove skeptics wrong. The recovery in real estate prices along with strong demand in consumer discretionary items have helped jumpstart this industry.

The following two ETFs represent distinct ways to play the homebuilder theme through diversified and low-cost investment vehicles:

SPDR S&P Homebuilders ETF (NYSE: XHB)

XHB is the larger of the two funds by a slim margin with more than $2.1 billion in total assets. This ETF tracks 37 stocks engaged in various aspects of the home building and renovation industries through a modified equal-weighted index.

Not only does XHB track new home construction companies such as Toll Brothers and Lennar, but it also has exposure to retail names such as Home Depot and Bed Bath & Beyond.

The proportional weighting methodology puts each stock in XHB on a level playing field, which allows for smaller companies to have a more pronounced impact on the total return. This ETF charges a reasonable expense ratio of 0.35 percent as well.

On a year-to-date basis, XHB has gained more than 6 percent versus just 2 percent in the SPDR S&P 500 ETF (NYSE: SPY).

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iShares U.S. Home Construction ETF (NYSE: ITB)

ITB is another popular alternative in this industry with $1.9 billion in total assets. This ETF tracks a similar mix of 37 stocks with a more traditional market-cap weighted asset allocation.

The largest holding in ITB is DR Horton, which accounts for nearly 11 percent of the portfolio. While the number of holdings in both ETFs is the same, there are some distinct differences in individual company selections that set them apart. ITB also includes several consumer discretionary and home décor retail stocks as part of its makeup.

Despite the differences in index construction, ITB has nearly mirrored the performance of XHB with a 6.5 percent return so far in 2015.  This also ETF charges a slightly higher expense ratio of 0.45 percent.

Ultimately, both funds provide transparent and liquid access to a wide array of established companies in this key economic segment.

Posted-In: Sector ETFs Broad U.S. Equity ETFs Trading Ideas ETFs Best of Benzinga

 

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