The homebuilding industry includes companies that are 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 U.S. has reached record highs, fueled by low interest rates and consumers reevaluating their current living situations amid the COVID-19 pandemic.
- The homebuilding industry significantly outperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are XHB, PKB, and ITB.
- The top holding of the first ETF is RH, and the top holding of the other two funds is D.R. Horton Inc.
There are 4 homebuilder ETFs that trade in the U.S., 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 with a total return of 112.6% over the past 12 months compared to the S&P 500's total return of 50.0%, as of May 6, 2021. The best-performing homebuilder ETF for Q3 2021, based on performance over the past year, is the SPDR S&P Homebuilders ETF (XHB). We examine the best 3 homebuilder ETFs below. All numbers below are as of May 11, 2021.
- Performance over 1-Year: 110.9%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.54%
- 3-Month Average Daily Volume: 2,134,102
- Assets Under Management: $2.3 billion
- Inception Date: Feb. 6, 2006
- Issuer: 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. 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 building products companies, followed by homebuilders and home improvement retailers. The fund's top three holdings include RH (RH), an upscale home-furnishings company; Williams-Sonoma Inc. (WSM), a home retailer offering kitchen-wares and home furnishings; and D.R. Horton, a home construction company.
- Performance over 1-Year: 105.5%
- Expense Ratio: 0.59%
- Annual Dividend Yield: 0.23%
- 3-Month Average Daily Volume: 54,313
- Assets Under Management: $308.4 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 comprised 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. It follows a blended strategy, which invests 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. Its top three holdings include D.R. Horton; Home Depot, a home improvement retailer; and Lowe's, a home improvement retailer.
- Performance over 1-Year: 100.5%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 0.34%
- 3-Month Average Daily Volume: 2,688,150
- Assets Under Management: $3.1 billion
- Inception Date: May 1, 2006
- Issuer: iShares
ITB offers exposure to the industry through a combination of homebuilders and suppliers. The ETF tracks the Dow Jones U.S. Select Home Construction Index, which gauges the performance of the home construction segment of the U.S. equity market. The fund's largest allocation is homebuilders, followed by building products companies and home improvement retailers. It follows a blended strategy of investing in both growth and value stocks. The fund's top three holdings include D.R. Horton; class A shares of Lennar, a homebuilder and originator of residential and commercial mortgage loans; and NVR, a homebuilding company.
The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.