Homebuilder ETF Showdown – XHB, ITB, PKB
Earlier this week, the National Association of Home Builders/Wells Fargo housing-market index rose to 52 in June. It was also the first time the index came in above 50 since 2006.
What’s so special about a reading above 50?
A reading above 50 indicates builders are optimistic about sales trends.
In other words, people on the front lines of the new home building market are optimistic about market conditions for the first time since the real estate bubble burst!
That sounds like a good reason to take a closer look at ETFs focused on homebuilders.
The two biggest homebuilder ETFs by assets under management (AUM) are SPDR S&P Homebuilders ETF (XHB) with $2.8 billion AUM and iShares Dow Jones US Home Construction Index Fund (ITB) with $2.4 billion AUM.
The other less popular homebuilder ETF is the PowerShares Dynamic Building & Construction Portfolio (PKB) with a little over $100 million in assets under management.
So far this year, ITB has led the way with $578 million in net inflows while XHB has added $229 million, and PKB has picked up $28 million.
However, XHB has been the best performer with a year-to-date gain of 18.7%. That bested ITB’s 15.4% gain and PKB’s 15.5% gain.
What’s behind XHB’s superior performance of these seemingly similar ETFs?
You guessed it… the index.
Let’s take a closer look at the indexes XHB and ITB track.
XHB tracks the S&P Homebuilders Select Industry Index. It represents the homebuilding sub-industry or the S&P total Market Index. This index is an equal weighted market cap index.
ITB tracks the Dow Jones US Home Construction Index. It represents the home construction sector of the US equity market. This index is a market cap weighted index.
For instance, the stocks of actual homebuilders make up 64% of ITB while building material companies make up 17%, home improvement companies account for 14%, and home furnishings accounts for 4%.
On the other hand, homebuilders make up just 27% of XHB while building material companies make up 26%, home furnishings 30%, and home improvement accounts for 15%.
As you can see, the different indexes cause XHB and ITB to hold dramatically different stocks and in different proportions.
Here the bottom line…
ITB has the larger exposure to true homebuilding stocks and could offer more upside if homebuilding margins expand. But XHB’s greater exposure to companies that benefit from everything that goes into a new home purchase has been delivering bigger gains so far this year.
Good Investing,
Corey Williams
Category: ETFs
