The residential construction industry consists of companies involved in residential construction and improvement. It features stocks of residential builders such as DR 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 pay close attention to the residential construction industry as a barometer of the direction of the economy and business cycle. Exchange-traded funds (ETFs) can be a useful way to gain broad exposure to the industry without taking the risks associated with investing in individual stocks.
Inventories of homebuilders have soared over the past year, as strong demand and tight housing inventory have led to soaring house prices. Last summer, the average house price increase in the United States hit a record high. In October, US house prices rose by an average of 8.4% year-on-year.
- In the past year, the residential construction industry performed better than the US stock market.
- The exchange-traded funds (ETF) of homebuilders with the best one-year tracking total return are XHB, HOMZ and ITB.
- The largest holdings of these ETFs are Builders FirstSource Inc., Lowe’s Companies Inc. and DR Horton Inc. respectively.
There are four homebuilder ETFs traded in the United States, excluding reverse and leveraged ETFs and funds with assets under management (AUM) of less than US$50 million. The residential construction industry as measured by the S&P 1500 residential construction sub-industry index has outperformed the market in the past 12 months, with a total return of 46.8%, while the S&P 500’s total return as of November 9 was 33.9% , 2021. Based on the performance of the past year, the best performing homebuilder ETF in the first quarter of 2022 is SPDR S&P Homebuilders ETF (XHB). We checked the top 3 best homebuilder ETFs below. All figures below are as of November 9, 2021.
- Performance over one year: 53.5%
- Expense rate: 0.35%
- Annual dividend yield: 0.52%
- Three-month average daily volume: 1,967,802
- Assets under management: US$2.2 billion
- Date of establishment: January 31, 2006
- Issuer: State Street
XHB provides investors with exposure to the US residential construction industry by tracking the S&P Home Builders Select Industry Index (representing the residential construction sub-industry portion of the S&P Total Market Index). ETFs use an equal-weight method, in which companies with larger and smaller market capitalizations obtain similar exposures. It also follows a mixed strategy, investing in a combination of growth and value stocks. The largest allocation of the fund is companies that provide construction products, followed by house builders and home improvement retailers. XHB’s top three holding companies are Builders FirstSource Inc. (BLDR), a manufacturer and supplier of building materials, manufacturing components and construction services; Williams-Sonoma Inc. (WSM), a professional home furnishing product retailer; And home improvement product retailer Lowe’s Companies.
- Performance over one year: 48.8%
- Expense rate: 0.30%
- Annual dividend yield: 2.63%
- Three-month average daily volume: 11,688
- Assets under management: US$78.8 million
- Date of Establishment: March 19, 2019
- Issuer: Pettee Investors
The goal of HOMZ is the Hoya Capital Housing 100 Index, which is made up of 100 companies that are thought to be likely to benefit from rising rents, rising home values, and continuing housing shortages. The ETF provides diversified exposure to the U.S. housing industry. Its holdings include home builders, home improvement companies, and real estate service and technology companies. The fund follows a mixed strategy of investing in growth and value stocks. The top three holdings of the fund are Lowe’s Companies; Home Depot, a home improvement retailer; and Independence Realty Trust Inc. (IRT), a real estate investment trust (REIT) that owns and operates multi-family apartments in the U.S. non-portal market Community.
- Performance over one year: 47.4%
- Expense rate: 0.41%
- Annual dividend yield: 0.43%
- 3-month average daily volume: 2,552,451
- Assets under management: US$2.7 billion
- Date of establishment: May 1, 2006
- Issuer: BlackRock Financial Management
ITB tracks the Dow Jones U.S. Select Residential Construction Index, which is composed of U.S. stocks in the residential construction industry. The ETF provides exposure to companies that manufacture homes and companies that provide related products and services. Housing construction companies receive the largest allocation in the fund, followed by companies that provide construction products and home improvement retailers. The fund follows a mixed strategy, investing in growth and value stocks within the market value range. The fund’s top three holdings include residential construction company DR Horton; Lennar’s Class A shares, Lennar is a residential builder and originator of residential and commercial mortgages; and NVR, a company that focuses on the construction of single-family detached houses, joint Residential builders building rows of villas and apartments.
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