Housing ETFs Rally on Solid Data - ETF News And Commentary
18 1월 2013 - 8:25PM
Zacks
Recent data releases have been quite positive for the market.
With the exception of the recent consumer sentiment, we saw both
retail and industrial production data come in positive while strong
growth was also seen in housing starts, indicative of a recovery in
the housing sector (Best Construction ETF to Ride the Housing
Upswing?).
Upbeat housing data led to a rally in homebuilder ETFs in the
past few trading sessions, continuing their remarkable run. It
seems that the residential construction sector is on the verge of
recovery with tremendous upside potential going forward,
potentially acting as a catalyst to the broad economy at large as
well.
New residential construction or housing starts reported a sharp
increase of 12.1% in December indicating that housing starts are
close to a five-year high. This indicates that the industry may
have bottomed out and is all set to rebound fueled by low-mortgage
rates, smaller housing inventory and a growing
population.
With improved buyers’ confidence in the market triggered by low
housing prices as well interest rates, demand for housing will keep
rising on the back of pent-up demand. This will keep the housing
sector in a recovery mode for the next few years.
In fact, homebuilder exchange traded funds have been one of the
top performing sectors in 2012 attributable to improving housing
and job data. And with Fed expected to keep interest rates low, the
sector could continue to perform well in 2013 (4 Best ETF
Strategies for 2013).
With housing start numbers remaining high, both iShares Dow
Jones U.S. Home Construction Index Fund (ITB) and the SPDR S&P
Homebuilders ETF (XHB) surged higher in the initial hours of
trading. ITB closed at $22.7, higher 2.71% while XHB posted a gain
of 1.85% to close at $28.15.
ITB has been the best performing ETF in 2012, delivering a
return of 78.9%. However, the fund still has to go a long way to
catch the highs of 2007. Right now it is trading 50% below that
level. XHB has also ridden a bull rally in 2012, recording a gain
of almost 58% on the year (Two Sector ETFs to Buy in 2013).
Investors looking to capitalize on 2012’s best performing sector
should invest in ETFs that have heavy exposure to the residential
real estate market. And for a direct exposure to U.S. homebuilding
companies, ITB represents an excellent option to play.
ITB offers a pure play into the sector as evidenced by its
allocation of 65.37% of its asset base of $2 billion to home
construction companies. Among building materials, home improvement
and furnishing the allocation is limited to 40%.
The fund also offers exposure to 29 companies in which
established homebuilders like Lennar Corp, Pulte Group and DR
Horton Inc take up the top line of the fund.
All of these companies could be poised to deliver strong gains
going forward thereby providing a boost to the performance of the
ETF. The fund charges an expense ratio of 46 basis points.
Although the SPDR ETF is somewhat larger and a more liquid
option to play in the sector it is probably not the right choice
for investors looking for a direct exposure to residential real
estate companies.
XHB has just 31.8% of its asset base of $2.3 billion in
homebuilding while the rest is spread across building products,
home furnishing retail, home improvement retail and household
appliances (Is XHB a Better Housing ETF Play?).
However, related sectors have reaped the benefits from the
resurgence in housing as exemplified by XHB’s performance in
2012.
XHB also offers a wider exposure to companies than ITB. XHB has
its asset base invested in 37 companies. Lastly, the fund has an
edge in expenses, charging 35 basis points annually.
The Bottom Line
Housing start numbers are expected to continue their uptrend.
However, builders remain a tad cautious given some fundamental
challenges very much at work, which include a still fragile
economy, obstacles related to project funding and limited number of
buyers qualifying for mortgage funding.
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ISHARS-DJ HO CO (ITB): ETF Research Reports
LENNAR CORP -A (LEN): Free Stock Analysis Report
SPDR-SP HOMEBLD (XHB): ETF Research Reports
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