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.
- The homebuilding industry underperformed 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 HOMZ, XHB, and ITB.
- The top holdings of these ETFs are Lowe’s Companies Inc., Owens Corning, 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 underperformed the broader market over the past 12 months, with a total return of 9.5% compared with the S&P 500’s total return of 17.0%, as of Jan. 27, 2022. The best-performing homebuilder ETF for the second quarter (Q2) of 2022, based on performance over the past year, is the Hoya Capital Housing ETF (HOMZ). We examine the top three homebuilder ETFs below. All numbers below are as of Nov. 9, 2021.
- Performance Over One-Year: 17.3%
- Expense Ratio: 0.30%
- Annual Dividend Yield: 2.62%
- Three-Month Average Daily Volume: 9,622
- Assets Under Management: $76.1 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 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 Public Storage (PSA), a self-storage real estate investment trust (REIT).
- Performance Over One-Year: 16.2%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.52%
- Three-Month Average Daily Volume: 3,639,966
- Assets Under Management: $2.1 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-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 homebuilders and home improvement retailers. XHB’s top three holdings are Owens Corning (OC), a maker of insulation, roofing and related materials; Allegion PLC (ALLE), an Ireland-domiciled maker of home and business security products; and Johnson Controls International PLC (JCI), an Ireland-domiciled HVAC, security, and fire systems company.
- Performance Over One-Year: 12.9%
- Expense Ratio: 0.41%
- Annual Dividend Yield: 0.42%
- Three-Month Average Daily Volume: 3,624,966
- Assets Under Management: $2.6 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 are 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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