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.
- The homebuilding industry outperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are ITB, XHB, and PKB.
- The top holdings of these ETFs are D.R. Horton Inc., Carrier Global Corp., and Martin Marietta Materials Inc., respectively.
There are 3 distinct ETFs that trade in the U.S., excluding inverse and leveraged ETFs and funds with less than $50 million in assets under management (AUM). The homebuilding industry, as measured by the S&P Homebuilders Select Industry Index, has outperformed the broader market with a total return of 26.0% over the past 12 months compared to the S&P 500's total return of 18.4%, as of November 16, 2020. The best-performing homebuilder ETF, based on performance over the past year, is the iShares U.S. Home Construction ETF (ITB). We examine the 3 best homebuilder ETFs below. All numbers below are as of November 17, 2020.
- Performance over 1-Year: 26.0%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 0.42%
- 3-Month Average Daily Volume: 3,495,760
- Assets Under Management: $2.1 billion
- Inception Date: May 1, 2006
- Issuer: iShares
ITB offers exposure to the homebuilding industry through a combination of homebuilders and suppliers. The fund 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. ITB holds 46 stocks and most of those are homebuilders (65%), followed by suppliers of building products (14%), and home improvement retailers (10%). The fund's three largest holdings include D.R. Horton, class A shares of Lennar, and NVR, all of which are homebuilders.
- Performance over 1-Year: 26.0%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.72%
- 3-Month Average Daily Volume: 2,928,562
- Assets Under Management: $1.4 billion
- Inception Date: February 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 portfolio is comprised of 35 holdings, of which building products companies receive a 38% allocation, followed by a 28% weighting for homebuilders, and 11% for home improvement retailers. Its three largest holdings are Carrier Global Corp. (CARR), an HVAC equipment manufacturer; Trane Technologies PLC (TT), an industrial equipment manufacturer; and Mohawk Industries Inc. (MHK), a manufacturer of residential and commercial flooring products.
- Performance over 1-Year: 17.3%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.35%
- 3-Month Average Daily Volume: 29,238
- Assets Under Management: $148.8 million
- Inception Date: October 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 merit criteria, such as price and earnings momentum, to determine which companies will comprise its portfolio. It follows a blended strategy, which invests in both value and growth stocks. The fund contains just 30 stocks, which primarily provide construction and related engineering services for residential properties, as well as commercial, industrial, and even large-scale infrastructure projects. The fund's top three holdings include Martin Marietta Materials Inc. (MLM), a producer of aggregates and heavy building materials; Trane Technologies; and Vulcan Materials Co. (VMC), a producer of construction aggregates such as asphalt and concrete.
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