The home-building industry consists of companies involved in the construction and improvement of residential homes. It features home builder 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 home-building 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.
- The home-building industry sharply underperformed the broader U.S. stock market over the past year.
- The home builder exchange-traded funds (ETFs) with the best one-year trailing total returns are HOMZ, XHB, and PKB.
- The top holdings of these ETFs are Lowe’s Companies, Mohawk Industries, and Tractor Supply Co., respectively.
There are four home builder ETFs that trade in the United States, excluding inverse and leveraged ETFs. The home-building industry, as measured by the S&P 1500 Homebuilding Sub-Industry Index, has sharply underperformed the broader market over the past 12 months, with a total return of -24.9% compared with the S&P 500’s total return of -0.5%, as of May 6, 2022.
We examine the top three home builder ETFs below. All numbers below are as of May 9, 2022.
- Performance Over One Year: -9.8%
- Expense Ratio: 0.30%
- Annual Dividend Yield: 2.62%
- Three-Month Average Daily Volume: 14,952
- Assets Under Management: $47.6 million
- Inception Date: March 19, 2019
- Issuer: Pettee Investors
HOMZ targets the Hoya Capital Housing 100 Index, an index composed of 100 companies considered 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 home builders, 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 American Campus Communities Inc. (ACC), a developer of campus buildings and student housing.
- Performance Over One Year: -21.0%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.52%
- Three-Month Average Daily Volume: 4,824,845
- Assets Under Management: $1.25 billion
- Inception Date: Jan. 31, 2006
- Issuer: State Street
XHB gives investors exposure to the U.S. home-building industry by tracking the S&P Homebuilders Select Industry Index, which represents the home-building subindustry portion of the S&P Total Market Index. The ETF uses an equal weight 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 home builders and home improvement retailers.
XHB’s top three holdings are Mohawk Industries Inc. (MHK), a flooring manufacturer; Owens Corning (OC), a maker of insulation, roofing, and related materials; and Whirlpool Corp. (WHC), a home appliance manufacturer.
- Performance Over One Year: -21.5%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.22%
- Three-Month Average Daily Volume: 47,487
- Assets Under Management: $158.9 million
- Inception Date: Oct. 26, 2005
- Issuer: Invesco
PKB offers exposure to the U.S. home-building industry, and as such offers exposure to a corner of the domestic economy that tends to be cyclical in nature. In addition to pure play home builders, this fund includes companies related generally to the home-building industry.
PKB might have appeal for investors looking for exposure to home builders who believe that the methodology used by the underlying index—which utilizes quant-based stock screens—is capable of generating alpha. For home builder exposure, PKB makes sense for those looking to avoid cap weighting, though options such as XHB are cheaper.
PKB's top three holdings are Tractor Supply Co. (TSCO), a farm- and ranch-oriented lawn care and home improvement store chain; Vulcan Materials Co. (VMC), a construction materials firm; and Home Depot, described above.
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