The homebuilder industry includes companies that are involved in the construction and improvement of residential homes. It features homebuilding stocks including D.R. Horton Inc. (DHI), Lennar Corp. (LEN), and NVR Inc. (NVR), as well as well known home improvement retailers Home Depot Inc. (HD) and Lowe's Companies Inc. (LOW). Investors closely watch the homebuilding industry as a barometer of the direction of the economy and business cycle. Exchange-traded funds (ETFs) can represent a useful means of gaining broad exposure to this industry without taking on the risk associated with investing in individual stocks.
- The homebuilder industry has outperformed the broader stock market over the past year.
- The 3 ETFs for the homebuilder industry are ITB, XHB, and PKB.
- The top holdings in these ETFs include D.R. Horton Inc., Whirlpool Corp., and PulteGroup Inc., respectively.
Over the past year, the homebuilder industry has outperformed the broader market by wide margin, with the benchmark S&P Homebuilders Select Industry Index posting a 1-year trailing total return of 29.7% versus the S&P 500’s total return of 22.9% as of September 1. Investors interested in the sector have 3 ETF options to choose from, excluding leveraged and inverse funds as well as those with under $50 million in assets under management (AUM).
The best homebuilder ETF, based on performance over the past year, is the iShares U.S. Home Construction ETF (ITB). Below, we’ll look at the top 3 homebuilder ETFs as measured by 1-year trailing total returns. All data except benchmark and S&P returns are as of September 3, 2020.
- 1-Year Trailing Total Return: 39.9%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 0.42%
- 3-Month Average Daily Volume: 3,343,441
- Assets Under Management: $2.3 billion
- Inception Date: May 1, 2006
- Issuing Company: iShares
ITB offers exposure to the homebuilder industry through a combination of home construction companies and suppliers. The fund tracks the Dow Jones U.S. Select Home Construction Index, which focuses on multi-cap U.S. stocks in the sector. ITB's expense ratio is competitive, but its holdings may be far more concentrated than PKB or XHB.The ETF's largest holdings are the homebuilders D.R. Horton, Lennar, and NVR; together, these three holdings account for about a third of the fund's invested assets. The fund also holds Home Depot and Lowe’s. In the case of this and similar ETFs, investors should be aware that the industry is highly cyclical.
- 1-Year Trailing Total Return: 33.0%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.80%
- 3-Month Average Daily Volume: 2,259,370
- Assets Under Management: $1.2 billion
- Inception Date: February 6, 2006
- Issuing Company: State Street SPDR
XHB gives investors exposure to the U.S. homebuilding industry by tracking the S&P Homebuilders Select Industry Index, which represents the homebuilding sub-industry portion of the S&P Total Markets Index. Unlike ITB, XHB uses an equal-weighted approach in which companies with larger and smaller market capitalizations are given similar exposure. Its three largest holdings are Whirlpool Corp. (WHR), the home appliance maker; Carrier Global Corp. (CARR), the HVAC equipment manufacturer; and Trex Company Inc. (TREX), the wood products manufacturer.
- 1-Year Trailing Total Return: 16.8%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.37%
- 3-Month Average Daily Volume: 34,270
- Assets Under Management: $126.2 million
- Inception Date: October 26, 2005
- Issuing Company: Invesco
Unlike the other ETFs listed above, PKB includes infrastructure construction and engineering service companies in addition to residential homebuilders. The fund typically invests 90% or more of its assets in the Dynamic Building Construction Intellidex Index, which consists of U.S.-based companies involved in construction and related services. Its three largest holdings are PulteGroup Inc. (PHM), the builder of homes and active adult communities; D.R. Horton; and Lowe's.