The homebuilding industry consists of companies involved in the construction and improvement of residential homes. It features homebuilder stocks like 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) may present a useful way to gain broad exposure to this industry without taking on the risk associated with investing in individual stocks.
Homebuilder stocks have surged over the past year, as strong demand combined with tight housing inventory have led to soaring home prices. The median home price in the United States reached record highs earlier in the year, fueled by low interest rates and consumers reevaluating their current living situations amid the COVID-19 pandemic.
- The homebuilding industry outperformed the broader U.S. stock market over the past year.
- The homebuilder exchange-traded funds (ETFs) with the best one-year trailing total returns are XHB, HOMZ, and PKB.
- The top holdings of these ETFs are class A shares of Floor & Decor Holdings Inc., Home Depot Inc., and Johnson Controls International PLC, respectively.
There are four homebuilder ETFs that trade in the United States, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). The homebuilding industry, as measured by the S&P 500 Homebuilding Sub-Industry Index, has outperformed the broader market over the past 12 months, with a total return of 39.9% compared to the S&P 500’s total return of 36.3%, as of Aug. 3, 2021. The best-performing homebuilder ETF for the fourth quarter (Q4) of 2021, based on performance over the past year, is the SPDR S&P Homebuilders ETF (XHB).
We examine the three best homebuilder ETFs below. All numbers are as of Aug. 4, 2021.
- Performance Over One-Year: 52.1%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.55%
- Three-Month Average Daily Volume: 2,314,940
- Assets Under Management: $1.9 billion
- Inception Date: Jan. 31, 2006
- Issuer: State Street Global Advisors
XHB gives investors exposure to the U.S. homebuilding industry by tracking the S&P Homebuilders Select Industry Index, which represents the homebuilding subindustry portion of the S&P Total Market Index.
The ETF uses an equal-weighted approach in which companies with larger and smaller market capitalizations are given similar exposure. It also follows a blended strategy, investing in a mix of growth and value stocks. The fund’s largest allocation is in building-products companies, followed by homebuilders and home improvement retailers.
XHB’s top three holdings are class A shares of Floor & Decor Holdings Inc. (FND), a flooring and accessories retailer; Carrier Global Corp. (CARR), a home appliances company; and class A shares of Lennar Corp., described above.
- Performance Over One-Year: 51.7%
- Expense Ratio: 0.30%
- Annual Dividend Yield: 2.63%
- Three-Month Average Daily Volume: 12,852
- Assets Under Management: $76.0 million
- Inception Date: March 19, 2019
- Issuer: Pettee Investors
HOMZ targets the Hoya Capital Housing 100 Index, an index composed of 100 companies deemed likely to benefit from rising rents, appreciating home values, and a persistent housing shortage. These 100 portfolio constituents are designed to reflect the broader U.S. housing industry and represent real estate investment trusts (REITs) with a focus on the residential market, homebuilders, home improvement companies, and related companies.
The fund’s top holdings are Home Depot Inc., described above; Lowe’s Companies Inc., described above; and Mid-America Apartment Communities Inc. (MAA), a REIT focused on apartment communities.
- Performance Over One-Year: 47.7%
- Expense Ratio: 0.59%
- Annual Dividend Yield: 0.24%
- Three-Month Average Daily Volume: 49,526
- Assets Under Management: $290.4 million
- Inception Date: Oct. 26, 2005
- Issuer: Invesco
PKB provides exposure to the U.S. homebuilding industry and largely tracks the Dynamic Building & Construction Intellidex Index, which is composed of U.S. building and construction stocks. The ETF uses a variety of investment criteria, such as price and earnings momentum, to determine which companies comprise its portfolio, and follows a blended strategy, investing in both value and growth stocks.
The fund’s holdings are mainly companies that provide construction and related engineering services for residential properties, as well as commercial, industrial, and large-scale infrastructure projects.
PKB’s top three holdings are Johnson Controls International PLC (JCI), an Ireland-domiciled multinational maker of fire, HVAC (heating, ventilation, and air conditioning), and security systems; Trane Technologies PLC (TT), an Ireland-domiciled American HVAC manufacturing company; and Home Depot Inc., described above.
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