Best Homebuilder ETFs for Q1 2022

XHB, HOMZ, and ITB are the best homebuilder ETFs for Q1 2022

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 growth in the average price of U.S. homes reached record highs this past summer. In October 2021, U.S. home prices rose 8.4% year over year (YOY) on average.

Key Takeaways

  • 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 ITB.
  • The top holdings of these ETFs are Builders FirstSource Inc., Lowe’s Companies Inc., and D.R. Horton Inc., 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 1500 Homebuilding Sub-Industry Index, has outperformed the broader market over the past 12 months, with a total return of 46.8% compared with the S&P 500’s total return of 33.9%, as of Nov. 9, 2021.

The best-performing homebuilder ETF for the first quarter (Q1) of 2022, based on performance over the past year, is the SPDR S&P Homebuilders ETF (XHB).

We examine the top three homebuilder ETFs below. All numbers below are as of Nov. 9, 2021.

SPDR S&P Homebuilders ETF (XHB)

  • Performance Over One-Year: 53.5%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 0.52%
  • Three-Month Average Daily Volume: 1,967,802
  • Assets Under Management: $2.2 billion
  • Inception Date: Jan. 31, 2006
  • Issuer: State Street

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.

XHB also follows a blended strategy, investing in a mix of growth and value stocks. The fund’s largest allocation is in companies that provide building products, followed by homebuilders and home improvement retailers.

XHB’s top three holdings are Builders FirstSource Inc. (BLDR), a manufacturer and supplier of building materials, manufactured components, and construction services; Williams-Sonoma Inc. (WSM), a retailer of specialty home products; and Lowe’s Companies, described above.

Hoya Capital Housing ETF (HOMZ)

  • Performance Over One-Year: 48.8%
  • Expense Ratio: 0.30%
  • Annual Dividend Yield: 2.63%
  • Three-Month Average Daily Volume: 11,688
  • Assets Under Management: $78.8 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 shortage of housing. The ETF provides diversified exposure to the U.S. residential housing industry.

HOMZ’s holdings are composed of homebuilders, home improvement companies, and real estate services and technology firms. The fund follows a blended strategy of investing in a mix of growth and value stocks.

HOMZ’s top three holdings are Lowe’s Companies and Home Depot, both described above; and Independence Realty Trust Inc. (IRT), a real estate investment trust (REIT) that owns and operates multifamily apartment communities across non-gateway U.S. markets.

iShares U.S. Home Construction ETF (ITB)

  • Performance Over One-Year: 47.4%
  • Expense Ratio: 0.41%
  • Annual Dividend Yield: 0.43%
  • Three-Month Average Daily Volume: 2,552,451
  • Assets Under Management: $2.7 billion
  • Inception Date: May 1, 2006
  • Issuer: BlackRock Financial Management

ITB tracks the Dow Jones U.S. Select Home Construction Index, which is composed of U.S. equities within the home construction industry. The ETF provides exposure to companies that manufacture residential homes and/or provide related products and services.

Homebuilding companies receive ITB’s biggest allocation, followed by building-products companies and home improvement retailers. The fund follows a blended strategy, investing in a mix of growth and value stocks across the market cap spectrum.

ITB’s top three holdings include D.R. Horton, a homebuilding company; Class A shares of Lennar, a homebuilder and originator of residential and commercial mortgage loans; and NVR, a homebuilder focused on the construction of single-family detached homes, townhomes, and condominium buildings.

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