Best Home Builder ETFs for Q4 2022

XHB, ITB, and PKB are the best home builder ETFs for Q4 2022

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), along with well-known home improvement retailers The 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.

Key Takeaways

  • The home-building industry 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 XHB, ITB, and PKB.
  • The top holdings of these ETFs are Williams-Sonoma Inc., D.R. Horton Inc., and Carlisle Companies Inc., respectively.

There are three home builder ETFs that trade in the United States, excluding inverse and leveraged ETFs and those with under $50 million in assets under management (AUM). The home-building industry, as measured by the S&P 1500 Homebuilding Sub-Industry Index, has underperformed the broader market over the past 12 months, with a total return of -16.2% compared with the S&P 500's total return of -2.6%, as of Aug. 12, 2022.

The best-performing home builder ETF for the fourth quarter (Q4) of 2022, based on performance over the past year, is the SPDR S&P Homebuilders ETF (XHB). We examine the top three home builder ETFs below. All numbers below are as of Aug. 12, 2022.

SPDR S&P Homebuilders ETF (XHB)

  • Performance Over One Year: -13.5%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 0.52%
  • Three-Month Average Daily Volume: 3,277,178
  • Assets Under Management: $1.1 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 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 Williams-Sonoma Inc. (WSM), a retail company selling home furnishings and kitchenware; Class A shares of Floor & Decor Holdings Inc. (FND), a hard surface flooring retailer; and Lennox International Inc. (LII), a company providing heating, air conditioning, and refrigeration products.

iShares U.S. Home Construction ETF (ITB)

  • Performance Over One Year: -13.9%
  • Expense Ratio: 0.39%
  • Annual Dividend Yield: 0.42%
  • Three-Month Average Daily Volume: 3,884,113
  • Assets Under Management: $1.6 billion
  • Inception Date: May 1, 2006
  • Issuer: BlackRock Financial Management

ITB is a multi-cap, blended fund that tracks the Dow Jones U.S. Select Home Construction Index. The index is composed of U.S. equities in the home construction industry. Nearly two-thirds of the fund's assets are invested in homebuilding stocks, with building products and home improvement retail securities making up the bulk of the remainder.

The top holdings of ITB include D.R. Horton Inc., Class A shares of Lennar Corp., and NVR Inc., all of which are home-building companies described above. The first two of these stocks represent over a quarter of ITB's invested assets.

Invesco Dynamic Building & Construction ETF (PKB)

  • Performance Over One Year: -14.3%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: 0.22%
  • Three-Month Average Daily Volume: 13,747
  • Assets Under Management: $130.0 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, although options such as XHB are cheaper.

PKB's top three holdings are Carlisle Companies Inc. (CSL), a supplier of building envelope products; D.R. Horton, described above; and Tractor Supply Co. (TSCO), a farm- and ranch-oriented lawn care and home improvement store chain.

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